Dollar faced with a bit of a double whammy as geopolitical tensions ebb

The greenback is down across the board already today but it could stand to be hurt more as the market focus shifts back to “normal”. USD/JPY is down 0.5% to 145.40 while EUR/USD is up 0.3% in testing waters above 1.1600 on the day. On the latter, the previous daily closes this month failed to hold above the figure level. So, that is one to keep an eye out for.

Amid the Iran-Israel conflict, the dollar managed to find back some of its shine as safety flows emerged. It wasn’t much but enough to suck out some dollar shorts at least.

But now with geopolitical tensions subsiding, a more risk-on mood is likely to unwind some of those dollar positioning in the past week or so. That’s one side of the sandwich working against the dollar.

The other is the latest Fed headlines from yesterday:

• Fed’s Bowman: It is time to consider adjusting the policy rate
• US dollar falls as the MAGA takeover of the Fed takes shape

Bowman’s surprisingly more dovish tilt is highlighting a risk that perhaps there is a broader trend taking shape at the Fed. And that won’t go down too well for the dollar, with markets possibly needing to reconsider stronger odds of a rate cut in the months ahead.

The next FOMC meeting in July should be ruled out at the very least but September is well and truly on the table now with traders pricing in ~96% odds of a rate cut then.

And to top this all off, geopolitical tensions fading into the background means the focus will now turn back towards Trump’s trade agenda. There’s no 90 deals in 90 days evidently and we’re only 15 more days away from the supposed 9 July deadline.

For risk trades, it seems like traders are still convinced that Trump will surely kick the can down the road when the time comes. It’s pretty much a case of betting on the TACO gear to kick into effect.

As for the dollar though, it just means more policy incoherence and a struggle to get any confidence on what will become of the US economy in the year(s) to come. And we’ve already seen how that has badly affected the greenback in the first half of this year. So, that is still what’s on the cards for the dollar as we return to the regular scheduled programming.

This article was written by Justin Low at www.forexlive.com.