The US Dollar ended the week with modest gains against most G10 currencies, supported by a relatively calm risk environment and ongoing market focus on US–Iran developments and Federal Reserve policy signals [1][2]. According to Scotiabank’s global FX strategy team, the Dollar was broadly firmer, with the exception of the Swiss Franc, as headline risks from US–Iran negotiations prompted both risk-on and risk-off reactions in recent days [1]. Key risk indicators remained subdued, with WTI crude oil trading just below $100 per barrel and the VIX volatility index threatening to extend its decline below 17, well below the 20 threshold that typically signals heightened market stress [1].
On the Federal Reserve front, President Trump was scheduled to swear in the new Fed Chair, Kevin Warsh, at 11am ET at the White House, marking a notable leadership transition [1]. Meanwhile, Federal Reserve Governor Christopher Waller stated that he does not expect to support a change in the policy rate in the near term, emphasizing that the outcome will depend heavily on the duration of the Iran conflict [2]. Waller suggested that the Fed should remove the easing bias from its statement, though he is not advocating for a rate hike at this point [2]. He expressed concern about rising inflation expectations as the Fed's inflation target has been missed for six consecutive years, and noted that if expectations become unanchored, he would not hesitate to support a rate hike [2]. Waller also highlighted that the labor market is now balanced and no longer the chief concern for policy direction, and that inflation risks are becoming more persistent with broadening price pressures [2].
Following Waller’s comments, the US Dollar Index rose 0.2% on the day to 99.38, reflecting continued strength in the currency [2]. Scotiabank noted that market focus for the North American session would remain on US–Iran developments, though progress was expected to be limited ahead of the Memorial Day holiday in the US [1].
Overall, both sources indicate that the US Dollar is benefiting from a combination of cautious risk sentiment, geopolitical uncertainty, and shifting Federal Reserve policy signals, with markets closely monitoring both the Iran situation and the Fed’s evolving stance on inflation and interest rates [1][2].
CONCLUSION
The US Dollar maintained its strength amid subdued risk sentiment and heightened focus on US–Iran developments. Fed officials signaled a potential shift away from an easing bias, contributing to the Dollar's gains. Markets are expected to remain attentive to geopolitical developments and further Fed policy signals in the coming sessions.