Resilient US economic data and a hawkish Fed stance may support the Dollar near-term despite easing oil prices and geopolitical risks.
The US Dollar has retreated slightly from post-payroll gains as optimism over a US-Iran breakthrough pushed Brent crude to a three-month low. However, resilient US economic activity and a likely hawkish Federal Reserve hold are expected to underpin USD strength in the near term.
Recent improvements in US labor demand and rising inflation have shifted the FOMC’s bias from easing to neutral. Markets will focus on the Fed’s dot plot for signals on a potential 25bps hike by year-end, with projections likely shifting from a 2026 cut to a 25bps increase.
While geopolitical easing may weigh on the Dollar temporarily, the Fed’s hawkish stance is seen as a stronger driver for USD appreciation. Risks remain, including potential shifts in Fed leadership.