FOREX-Dollar slips as markets eye central bank meetings amid Middle East conflict
By Chibuike Oguh
NEW YORK, March 16 (Reuters) - The dollar pulled back from 10-month highs on Monday in a week packed with key central bank meetings even as uncertainty from the Middle East conflict continued to weigh on markets.
The dollar has benefited from a flight to safety since the U.S.-Israeli strikes on Iran began at the end of February and oil prices surged. Other major currencies such as the euro have been hurt by their economies' dependence on oil imports.
But investors are positioning ahead of central bank meetings this week, including from the U.S. Federal Reserve, the European Central Bank, the Bank of England and the Bank of Japan.
"Everything is being driven by oil at present; I don't think the movement is necessarily correct," said Eugene Epstein, head of trading and structured products at Moneycorp in New Jersey.
The euro EUR= reversed course after hitting a 7-1/2-month low earlier in the session, trading 0.92% higher at $1.1521. Sterling GBP= was up 0.84% at $1.33345 - just above the 3-1/2-month low it hit on Friday.
The dollar index =USD was down 0.64% to 99.70, snapping four straight sessions of gains but still trading near Friday's 10-month high of 100.54.
"The market has priced in a lot of hawkishness purely based on expectations of higher inflation because of this oil shock. I think that's very misplaced and will eventually work its way out in the coming weeks and maybe months," Epstein added.
"That's all directly affecting the dollar because if you look at the market expectations for Fed policy, we were priced in two cuts fully for 2026 and 50% chance of a third cut. Now, we are barely pricing in one cut."
The market is estimating a near-100% chance that the Fed will keep rates unchanged at the end of its meeting on Wednesday, according to the CME's FedWatch tool.
U.S. President Donald Trump called on allies over the weekend to help secure the Strait of Hormuz - a narrow passage of water between Iran and Oman through which 20% of the world's oil and liquefied natural gas flow - and said his administration was talking to seven countries about it. The Wall Street Journal reported that Washington plans to announce as early as this week that multiple countries have agreed to escort ships through the waterway.
Brent crude futures LCOc1 settled down 2.8% at $100.21 a barrel, while U.S. West Texas Intermediate crude CLc1 fell 5.28% to settle at $93.50. Both contracts have surged more than 40% this month to their highest since 2022, driven by the Middle East conflict.
"Wednesday's FOMC is unlikely to be a pivotal event for the USD in this environment," said Bank of America Global Research analysts led by Mark Cabana in an investor note.
"No expected policy changes are on the horizon, and geopolitically-driven uncertainty is rising by the day, keeping the USD supported. The overall messaging and tone from Chair Powell will likely underscore these increased uncertainties, while any revealed bias on the inflation or growth risks will likely be quickly digested by the FX market."
YEN HOVERS NEAR INTERVENTION ZONE
The Australian dollar AUD= rose 1.4% to $0.7077, buoyed by hawkish rate expectations at home with the Reserve Bank of Australia expected to tighten policy on Tuesday.
Markets now price in a roughly 72% chance that the RBA could deliver a 25-basis-point hike. 0#AUDIRPR
The yen traded just below 160 per dollar - its weakest levels since the BOJ's last intervention to strengthen the currency in July 2024. It has come under pressure due to the nation's heavy reliance on the Middle East for energy supplies, with the war also throwing into question the BOJ's rate outlook.
The dollar JPY= was down 0.47% to 158.97 against the Japanese yen.
Elsewhere, the dollar CNH= weakened 0.21% to 6.890 versus the offshore Chinese yuan.
