Dollar Strengthens as Fed Signals, Middle East Tensions and Oil Risks Shape Markets

Investors and forex traders are focusing on the latest comments from Federal Reserve officials. Richmond Fed President Tom Barkin stated that amid persistently high inflation and a stabilizing labor market, the issue of rising consumer prices may once again become the main concern. According to the official, the escalation of tensions between the United States and Iran could accelerate inflation due to higher energy prices, and he does not rule out several months of significant price growth.

Meanwhile, the number of initial jobless claims remained at 213K, below the forecast of 215K. The four-week moving average declined from 220.50K to 215.75K, while continuing claims rose from 1.822M to 1.868M. At 15:30 (GMT+2), February labor market data will be released. Unemployment is expected to remain at 4.3%, while nonfarm payrolls could decline from 130K to around 58K. Analysts note that most of January’s job growth came from the healthcare sector. However, if the new data turns out stronger than expected, the probability of the Federal Reserve maintaining interest rates at current levels for an extended period will increase, supporting the US dollar.

Eurozone

The euro is weakening against the pound and the US dollar while showing mixed dynamics against the yen.

Fourth-quarter GDP data for the eurozone showed a slowdown in growth from 0.3% to 0.2% quarter-on-quarter and from 1.4% to 1.2% year-on-year, compared with expectations of 1.3%. Earlier, ECB Vice-President Luis de Guindos, Bundesbank President Joachim Nagel, and Bank of Finland Governor Olli Rehn warned that a prolonged Middle East conflict could lead to slower economic activity and rising inflation. ECB President Christine Lagarde also noted that future monetary policy decisions will depend on incoming macroeconomic data. Meanwhile, Bank of Spain Governor José Luis Escrivá said the ECB is unlikely to adjust monetary policy at its upcoming meeting and expressed hope that the economic damage from the conflict will remain limited.

United Kingdom

The pound is weakening against the US dollar but strengthening against the euro and showing mixed performance against the yen.

February housing price data from Halifax Bank Plc. showed that the index declined from 0.8% to 0.3% on a monthly basis, while rising from 1.1% to 1.3% year-on-year, above the forecast of 0.9%, marking the highest level since October. Analysts note that the housing sector is recovering significantly, but warn that the improvement could be temporary as geopolitical tensions in the Middle East increase risks of higher inflation and slower economic growth. As a result, the Bank of England may proceed more cautiously with monetary easing. Most analysts currently expect the interest rate to remain at 3.75% this month.

Japan

The yen is weakening against the US dollar while showing mixed dynamics against the euro and the pound.

Investors are closely watching recent comments from policymakers. Bank of Japan Deputy Governor Ryozo Himino stated that the central bank will closely monitor fluctuations in the national currency, as they may affect core inflation and public expectations regarding future price trends. Meanwhile, Finance Minister Satsuki Katayama said authorities will coordinate actions with international partners and take measures against excessive volatility in financial markets caused by the Middle East conflict, warning against a sharp depreciation of the yen. Former BOJ chief economist Seisaku Kameda also suggested that policymakers are likely to postpone interest rate hikes until June or July, as the confrontation between the United States and Iran shows no signs of ending.

Australia

The Australian dollar is strengthening against the pound and the euro while showing mixed dynamics against the yen and the US dollar.

Next week investors will focus on the release of the consumer confidence index from Westpac Banking Corp. Preliminary estimates suggest the indicator could decline from 90.5 to 89.5 points. This may put some pressure on the national currency, although the change is unlikely to be significant enough to make the Reserve Bank of Australia abandon plans for monetary tightening in the medium term.

Oil

Oil prices continue to rise amid the escalation of the Middle East conflict. The Strait of Hormuz, through which up to 20% of global oil shipments pass, remains blocked, while refining infrastructure in major OPEC producers, including Saudi Arabia, has suffered significant damage.

Attempts by the White House to mitigate the sector’s losses have so far failed. However, according to the latest reports, the administration of US President Donald Trump is considering intervention in the oil futures market. Meanwhile, Qatar’s Energy Minister Saad al-Kaabi told The Financial Times that hydrocarbon producers in the Persian Gulf could halt exports within weeks if the confrontation between the United States and Iran does not end, potentially pushing oil prices toward $150 per barrel.