USD Mixed as Markets Focus on FOMC and Middle East Crisis

USD Trades Mixed as Markets Await FOMC and Monitor Middle East Tensions

The US Dollar (USD) is trading in a narrow, mixed range against major currencies early Tuesday, reflecting growing market uncertainty tied to escalating Middle East tensions and anticipation ahead of the Federal Reserve’s policy announcement on Wednesday.

USD Flat Despite Elevated Geopolitical Risks

Traders are keeping one eye on potential Israel-Iran diplomatic outcomes, and another on the Fed’s next move. Yesterday’s reports of Iran’s willingness to negotiate momentarily lifted risk appetite, but Israel’s refusal to engage has kept tensions high.

Adding to the uncertainty, President Trump departed the G7 summit early to return to Washington, further fueling speculation that Middle East developments are intensifying.

Risk Assets Hedge Higher; FX Mixed

Despite risk hedging reflected in stronger oil and gold prices, the USD has shown little momentum. Treasury yields firmed slightly, while FX markets remain subdued. High-beta currencies like the NOK and CHF edged higher, while MXN and KRW lagged.

"The lack of a clear 'haven' bid for the USD amid geopolitical stress highlights bearish USD sentiment," analysts noted.

US Data Set to Disappoint

Market expectations for today’s US economic data are muted:

Retail Sales (May): Expected to fall -0.6%, weighed down by ongoing tariff impacts.
Industrial Production: Likely to remain flat.
Business Inventories: No major movement anticipated.
NAHB Housing Market Index: Modest uptick forecast, though rising inventories may signal deeper housing weakness.

Conclusion

With markets on edge ahead of the FOMC meeting and Iran-Israel diplomacy in limbo, the US Dollar is showing indecision, drifting in a narrow range with limited safe-haven demand. Broader weakness in global equities and potential underperformance in US data are adding pressure to an already fragile USD outlook.