USD Outlook: Upside Risks Remain Despite Fed Projections and Treasury Data

USD Outlook: Upside Risks Remain Despite Fed Projections and Treasury Data

Markets Shrug Off Fed & TIC Data — Focus Turns to Geopolitics

Despite two significant macroeconomic events on Wednesday—the FOMC rate decision and the TIC capital flow data—the US Dollar (USD) held steady, as FX markets chose to discount long-term Fed projections in favor of more pressing global uncertainties.

The Federal Reserve's June decision did little to move markets, with investors showing skepticism toward the dot plot, which now anticipates only two rate cuts through 2025. Persistent volatility in oil prices, the unclear impact of potential tariff escalations, and de-dollarisation fears have muddied the medium-term outlook.

TIC Data: No Mass Exodus from US Treasuries

Shortly after the Fed announcement, TIC (Treasury International Capital) data showed only a modest $36 billion reduction in foreign-held US Treasuries in April—out of a $9 trillion total. This implies that domestic institutions may have played a more significant role in recent Treasury volatility than previously thought.

"This data helps challenge the narrative of a widespread foreign exit from US debt," analysts at Tredu note. "However, de-dollarisation trends remain anecdotal, and more monthly data is needed to confirm this resilience."

Geopolitical Risk: Iran Strike Speculation Grows

The immediate driver for USD strength appears to be the escalating geopolitical tensions in the Middle East. Several media outlets report that the US may launch direct military action against Iran as early as this weekend. The safe-haven appeal of the Dollar is amplified in such scenarios, particularly when other global currencies are facing uncertainties of their own.

Conclusion: USD Holds Its Ground

• Fed's dovish tone has limited short-term FX impact
• TIC data eases fears of mass foreign divestment
• Geopolitical tensions are the dominant driver of Dollar demand

The USD remains in a strong technical and fundamental position, especially if Middle East conflict escalates, potentially reinforcing its safe-haven status in the global FX market.

Explore More: How Geopolitics Impacts USD Performance