The US Dollar (USD) regained strength on Thursday, reversing a two-day decline triggered by softer-than-expected US inflation data earlier in the week. The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, traded around 100.70–100.72 after falling to 100.35 on Wednesday, its lowest level since June 18 [1][2][3]. This rebound was supported by solid US economic data, including June Retail Sales rising 0.2% month-over-month, in line with expectations, and Initial Jobless Claims falling to 208K for the week ending July 11, below the forecast of 217K [2][3]. May's Retail Sales were revised upward to 1.0% from 0.9%, and the Retail Sales Control Group came in at 0.5%, down from May's 0.8% [3]. The Federal Reserve’s Beige Book noted employment gains in July, with some districts showing modest to solid increases [2].
Geopolitical tensions in the Middle East further bolstered the Greenback’s safe-haven appeal. Hostilities escalated as the US launched attacks on Qeshm Island and an oil tanker, prompting Iran to retaliate with strikes on American bases in Kuwait and Jordan [2]. These developments drove oil prices higher, fueling inflation risks and keeping expectations of a Fed rate hike alive. According to the CME FedWatch Tool, markets are pricing in a 58% chance of a rate hike by September, rising to 65% by October and 76% by December [3]. Prime Terminal data shows a 73% chance of the Fed holding rates unchanged in July, but the probability of a rate increase for the October 28 meeting has risen to nearly 57% [2].
The currency heat maps indicate the US Dollar was the strongest against the British Pound, with USD/GBP up 0.38% [3]. The Pound Sterling (GBP) pulled back, down over 0.48% against the USD, trading at 1.3375 after peaking near 1.3545 [2]. The New Zealand Dollar (NZD) also fluctuated, trading around 0.5842 after reaching a one-month high earlier in the week, supported by the Reserve Bank of New Zealand’s hawkish stance but capped by USD strength [1]. NZD/USD held above key moving averages, with the Relative Strength Index at 63, indicating bullish momentum [1]. The Swiss Franc (CHF) weakened against the USD, with USD/CHF up nearly 0.35% on the day, rebounding from an intraday low of 0.8044 [3]. The Swiss National Bank noted easier monetary conditions and reiterated its willingness to intervene in the FX market amid geopolitical uncertainty [3].
Technical outlooks across pairs show buyers retaining the upper hand as long as support levels hold, with resistance levels identified for potential further gains. The market is closely watching geopolitical developments and upcoming Fed meetings for direction, as analyst opinions and forward-looking statements highlight increased rate hike expectations and inflation risks [2][3].
CONCLUSION
Robust US economic data and escalating Middle East tensions have strengthened the US Dollar, increased rate hike expectations, and pressured major currencies like the GBP, NZD, and CHF. Market sentiment is positive for the USD, with high impact expected as investors focus on upcoming Fed decisions and geopolitical developments. The outlook remains constructive for the Greenback, with technical and fundamental factors supporting further gains.