US Dollar Balances Geopolitical Tensions and Trade Talks Ahead of FOMC

USD Outlook: Geopolitical Jitters vs Trade Hopes Ahead of FOMC and G7 Summit

The US Dollar (USD) has found limited upside support from the ongoing Israel-Iran conflict, but the greenback has yet to show a decisive bounce. With traders awaiting this week’s FOMC rate decision and G7 trade developments, the dollar’s next move will likely hinge on a shift in geopolitical or trade sentiment.

Geopolitical Premium: Waning or Temporary?

Despite persistent Middle East tensions, market response remains muted. The oil price channel—a critical FX transmission route—is sending signals that the worst may be priced in.

While a small risk premium on crude remains, most traders now expect stabilization, unless tangible signs of supply disruption appear. The US is actively attempting to mediate between Israel and Iran, and any credible de-escalation could dampen the USD’s safe-haven appeal.

G7 Summit: A More Lasting USD Catalyst?

What may ultimately prove more supportive for the US Dollar is progress at the G7 summit in Canada.

“Trump has sometimes softened his stance on tariffs after face-to-face dialogue with global leaders,” say analysts.

If markets sense that the 90-day tariff moratorium will be extended or trade talks shift positively, investor confidence in the USD may return.

Trade clarity combined with expectations for a status quo FOMC statement could further reduce uncertainty and stabilize the dollar heading into Q3.

FOMC Decision Looms Large

With the Federal Reserve’s rate announcement due Wednesday, traders remain cautious.

Markets are leaning toward the view that policy easing is likely later in 2025, especially if inflation continues to moderate. However, hawkish messaging or delayed rate cuts could revive interest in the dollar, especially as geopolitical risks cool off.

Conclusion: Dollar in Balance Mode

The USD remains at a crossroads, with conflicting inputs from geopolitics and trade. While tensions in the Middle East offer short-term support, markets appear to be more focused on FOMC guidance and G7 outcomes. A trade breakthrough or hawkish Fed tone may offer the dollar more upside than war headlines in the days ahead.