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Dollar stays steady as geopolitics fades, rates drive FX focus

ING says the DXY could see only a limited reaction if oil remains contained, because investors are leaning on front end rate differentials rather than Middle East risk.

Reported · Written up by our desk · Major Pairs

The US dollar has been broadly unchanged despite renewed Middle East tensions, with ING pointing to fading geopolitical risk as oil retraces and risk sentiment improves, keeping traders focused on interest rate differentials.

According to ING’s Francesco Pesole, the lack of dollar support reflects markets repricing rate expectations, with front end differentials moving against the USD in some cases, including versus the euro.

ING warned that investors may be underestimating the risk of a new Strait of Hormuz closure and the potential for non linear oil spikes, which would shift the balance back toward the dollar.

The note added that the upside risks for the dollar appear bigger if oil rises modestly and markets move away from headline fatigue, but otherwise the expectation is a limited DXY response.

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