USD: MUFG says rebound depends on risk-off sentiment

US Dollar Holds Firm Amid Uncertainty Over Middle East Ceasefire

Derek Halpenny, Head of Research at MUFG, observes that the US Dollar has found stability following a slight recovery, as investors reconsider the uncertain ceasefire situation in the Middle East and its influence on market risk appetite. He points out that shifts in US monetary policy are unlikely to be the main catalyst for further Dollar strength, suggesting that unless risk aversion increases significantly, the currency’s gains will likely remain limited due to weak underlying fundamentals.

Ceasefire Concerns Keep Dollar Supported

According to Halpenny, the Dollar has maintained a steady performance in recent trading sessions, following a moderate uptick as skepticism about the ceasefire persists and key questions remain unresolved.

He notes that the yield on the 2-year US Treasury bond has edged up by around 6-7 basis points from yesterday’s lows, reflecting growing doubts about the durability of the ceasefire agreement.

Halpenny adds that, regardless of how the conflict develops in the near future, differences in monetary policy are unlikely to be the main factor driving the Dollar’s value.

He emphasizes that the most likely scenario for a stronger Dollar would be a significant rise in risk aversion, prompting investors to seek safety in the US currency.

Overall, Halpenny believes the Dollar’s relatively modest gains throughout the conflict highlight its fragile fundamentals, which are expected to become more apparent if tensions ease further in the coming weeks.

(This article was produced with assistance from an AI tool and reviewed by an editor.)