The USD fluctuated slightly in Tuesday's trading session as investors shifted their attention to meetings of major central banks this week. The market is also closely monitoring the developments of conflicts in the Middle East and oil price prospects.
Conflicts in the Middle East continue to be the focus as oil prices remain above $100/barrel due to concerns about supply disruptions in the context that the Strait of Hormuz is largely still blocked. In the previous session, crude oil prices fell after some ships could move through this important shipping route.
Mr. Mohit Kumar – Economist at Jefferies said that if Iran allows cargo ships heading to India, China and South Asia to pass through themuz Strait, pressure on global oil supplies could be significantly reduced. At the same time, Iran can still assert that it is controlling transportation through this route.
Meanwhile, Iran launched new attacks on the United Arab Emirates on Tuesday. These are attacks targeting US Gulf allies that President Donald Trump previously considered unlikely to happen.
Focus shifts to reactions from central banks
Investors are now questioning whether the global economy is returning to the same environment as 2022, when central banks simultaneously implemented a strong monetary tightening cycle.
The US Federal Reserve (Fed) will announce its policy decision on Wednesday. One day later, the European Central Bank, the Bank of England and the Bank of Japan will also make interest rate decisions.
Analysts predict that these central banks are likely to keep interest rates unchanged. However, the market will closely monitor signals about how policymakers react to the impact of the war in the Middle East.
According to Ms. Antje Praefcke - Foreign Exchange Analyst at Commerzbank, central banks can closely monitor inflation expectations as a lesson from previous price shocks. She also believes that they may react faster than in the post-pandemic period.
Traders are currently assessing the possibility of the European Central Bank raising interest rates nearly twice in 2026. This is a significant change compared to before the conflict broke out, when the market still predicted about 50% of the possibility of interest rate cuts.
Mr. Paul Mackel - Head of Global Foreign Exchange Research at HSBC said that the current context is different from the period in 2022 when the Russia-Ukraine war began. At that time, the USD was supported by the Fed's tight monetary policy and weaker global growth prospects. These supporting factors are no longer clear.
The Euro fell 0.15% to $1.1490. Earlier on Monday, the European currency fell to $1.1409, the lowest level since August 2025.
According to Mr. Mackel, if the restrictions on energy supply in the Gulf region last, the euro/USD exchange rate may fluctuate in the range of 1.10 to 1.12.
The USD Index, which measures the strength of the greenback against a basket of six major currencies, rose slightly 0.05% to 99.9 points. Previously on Friday, this index touched 100.54 points, the highest level since May 2025.
Japanese Yen still close to intervention zone
The Japanese Yen weakened to 159.31 yen/USD, only a short distance from the 160 mark despite Japanese officials repeatedly issuing warnings in words. Since the conflict broke out at the end of February, the Yen has lost more than 2% of its value against the USD.
Governor of the Bank of Japan Kazuo Ueda said that core inflation is gradually increasing to the bank's target level of 2%. He emphasized that price increases need to be accompanied by a solid wage increase.
According to Barclays, if oil prices continue to rise, the Hormuz Strait is prolongedly blockaded and the meeting of the Bank of Japan sends a peaceful message, the USD/yen exchange rate may test the 160 mark before moving to the 161 zone, an area that recorded intervention in the foreign exchange market in 2024.
Japanese Finance Minister Satsuki Katayama said the government is ready to take drastic measures to deal with strong fluctuations in the foreign exchange market and other financial markets.
Meanwhile, the Australian dollar almost went sideways after the country's central bank decided to raise interest rates with close voting results. The currency slightly increased by 0.05% to $0.7074 after hitting $0.7095 at one point in the trading session.
