The Dollar remained largely stable on Thursday as escalating tensions in the Middle East cast a shadow over markets, while a series of central bank decisions, including an unexpected rate cut by Norway, kept traders on alert.
Surging geopolitical risks have recently reinforced the Dollar’s appeal as a safe-haven asset.
Iran and Israel launched additional airstrikes on Thursday, marking the seventh day of the conflict. Fears of possible US involvement are rising, with President Donald Trump leaving global observers uncertain about whether the US will participate in strikes on Iranian nuclear facilities.
The Federal Reserve kept interest rates unchanged on Wednesday, and attention now turns to the Bank of England’s decision later in the day, with markets widely anticipating no change to its base rate.
Meanwhile, the Swiss Franc strengthened against the Dollar after the Swiss National Bank implemented an expected rate cut.
Furthermore, Norway’s central bank, the Norges Bank, unexpectedly cut rates by 25 basis points, defying market expectations that it would hold steady, Reuters reports.
The Dollar and Euro both climbed against the Norwegian Crown, rising 0.7% and 0.6% respectively, though the Crown remains one of the best-performing major currencies against the Dollar this year, up around 11%.
Elsewhere, the Euro dipped 0.1% to $1.147, while the Yen traded at 145.28 per Dollar.
The Swiss Franc gained strength after the Swiss National Bank opted against a more aggressive half-point rate cut. On Thursday morning the Dollar had dropped 0.4% against the Franc to 0.8157, and the Euro was down 0.3% at 0.9369.
The Dollar index, which tracks the greenback against a basket of six major currencies, was unchanged at 98.9 but on course for a weekly gain of around 0.8%, its best performance since late February.
According to some analysts, the move was partly driven by investors unwinding short-Dollar positions.
“The Dollar seems ripe for a short-covering rally – especially if the US wades into the Middle East conflict,” stated Matt Simpson, a senior analyst at City Index.
Geopolitical tensions seem to have taken precedence over the Federal Reserve’s policy decision, noted Christopher Wong, a currency strategist at OCBC. “Risk aversion dominates sentiments, and that puts pressure on risk-sensitive FX,” he said.
With US markets closed on Thursday for the Juneteenth holiday, trading volumes may be thinner, potentially impacting market liquidity.