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The US Dollar Index (DXY) retreated toward 98.00 as improved risk appetite following reports of a potential US-Iran deal eased pressure on the greenback. Despite resilient US economic data, the dollar found limited support, with traders shifting focus to safer assets amid reduced geopolitical tensions. The easing of Middle East conflict fears diminished demand for safe-haven currencies like the Japanese Yen and Swiss Franc, indirectly supporting risk-on trades.
This development signals a shift in market dynamics, where geopolitical risks often drive dollar demand. With the Fed maintaining a data-dependent stance, the upcoming Non-Farm Payrolls (NFP) report on Friday will be critical in determining the dollar's trajectory. A strong NFP print could reignite bullish momentum for the dollar, while a weak report might accelerate its decline against majors. Traders are also monitoring the Fed's potential rate-cut signals in response to inflation trends.
For MENA investors, the dollar's performance remains tied to global risk sentiment and central bank policies. The US-Iran situation's resolution could further stabilize markets, reducing volatility in energy and equity sectors. Key watchpoints include the NFP data, Fed speeches, and any new developments in Middle East diplomacy. A sustained drop in DXY below 97.50 could trigger broader portfolio rebalancing in Gulf markets.
