2026-06-09 · generated by deepseek-v4-flash

Dollar Steady as Fed Cut Hopes Fade, Geopolitical Risks Mount

The dollar held firm as Bank of America pushed back rate-cut expectations to 2027 and Gundlach warned of no cuts this year. Geopolitical tensions in the Middle East and Russia-Ukraine added volatility, while EUR/USD and USD/JPY remained range-bound.

Overview: Hawkish Fed Rhetoric Dominates

The dollar index held near recent highs on Tuesday as a chorus of hawkish Federal Reserve commentary and dimming rate-cut expectations underpinned the greenback. Bank of America revised its forecast, now expecting the Fed to hold rates until at least 2027, citing sticky inflation and a resilient labor market. Bond investor Jeffrey Gundlach warned that hopes for a 2026 rate cut have likely extinguished, advising increased allocation to cash and gold. Chicago Fed President Goolsbee echoed that while progress on inflation would eventually allow cuts, such conditions are not yet visible. The April nonfarm payrolls report showed an above-consensus 115,000 new jobs, though the prior two months were revised down by a net 16,000. The University of Michigan's May 1-year inflation expectation eased to 4.5%, below the 4.8% estimate, slightly easing immediate inflation fears but keeping the Fed on guard.

EUR/USD: ECB Tackles Energy, AI Risks

EUR/USD traded in a tight range around 1.0850, pressured by dollar resilience and cautious ECB commentary. ECB Governing Council member Escrivá highlighted AI-driven risks to financial infrastructure and reiterated the central bank's role as the ultimate guarantor against stablecoin risks. Fellow member Nagel vowed necessary action to contain energy price-driven inflation, signaling a continued hawkish bias. The pair found support from signs of easing near-term U.S. inflation expectations but lacked momentum to break higher. Key support at 1.0800 remains intact, with resistance at 1.0900 ahead of any fresh catalyst.

USD/JPY: Geopolitical Jitters and Safe-Haven Flows

USD/JPY slipped slightly to the 134.50 area as escalating Middle East tensions—including Iranian forces engaging U.S. vessels in the Strait of Hormuz and Iran drafting new maritime legal frameworks—prompted modest safe-haven demand for the yen. Japan’s currency also drew support from a general pullback in risk appetite amid uncertainty over Russia-Ukraine conflict de-escalation. Despite the Fed’s hawkish stance, the yen’s yield disadvantage is being partially offset by risk-off sentiment. The pair is likely to remain sensitive to any further geopolitical headlines.

USD/CNY: Yuan Firms on Policy Support, Trade Data

The offshore yuan strengthened 116 pips to 6.7971 against the dollar, while the onshore rate closed at 6.8005, up 63 pips. Support came from the implementation of two forex facilitation pilot measures in the Qianhai Free Trade Zone, with the first transaction settled. Additionally, strong Q1 trade data out of Jiangsu—exports surging 17.2% year-on-year—and a continued expansion in cross-border yuan settlements from Chongqing (85.05 billion yuan in Q1) reinforced confidence in the Chinese economy. Market participants are watching for any further progress in Iran-U.S. negotiations, which could influence oil prices and, by extension, the yuan’s outlook.

Commodities and Risk: Oil and Gold in Focus

Geopolitical risks in the Strait of Hormuz, combined with Iran’s active legislative moves and sporadic clashes, have kept oil prices elevated, benefiting the Canadian dollar and other commodity-linked currencies. Gold held near $1,960, supported by Gundlach’s advice and persistent uncertainty. The broader FX market remains driven by the tug-of-war between hawkish central bank rhetoric and rising geopolitical risk premiums.