Dollar Stagnates Amid Rising Fed Hike Odds and Middle East Tensions
The US dollar showed little strength despite heightened expectations of a Federal Reserve rate hike, as Middle‑East geopolitical risks and global central‑bank tightening weigh on the greenback.
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Desk Analysis
How This Affects the Exchange
Sector Effect
Negative · Do not buy
Dollar weakness and Fed hike expectations raise import costs and debt risk for Oil & Gas, Power, and Cement sectors; avoid buying.
Sectors & Direction
Desk read
Desk call: Do not buy · Negatively affected
- Oil & GasNegatively affected
- PowerNegatively affected
- CementNegatively affected
- BanksNegatively affected
Companies
Mentions in This Briefing
Sectors: Oil & Gas, Power, Cement, Banks — Negative · Do not buy. PSX tickers: MEBL, MCB, UBL, HBL, BAHL, FABL. Dollar weakness and Fed hike expectations raise import costs and debt risk for Oil & Gas, Power, and Cement sectors; avoid buying.
Full Story
Open on Business Recorder## Market Overview
The US dollar remained on shaky footing on Monday, failing to sustain the brief boost it received from Friday’s strong US jobs report. Traders priced in roughly a 57% probability that the Federal Reserve will raise rates this month, while the dollar slipped 0.07% against a basket of currencies to 99.09, close to its recent low of 98.558.
## Drivers of Dollar Weakness
Several factors constrained the greenback: - Middle‑East tensions have revived concerns about broader inflationary pressures, prompting expectations that other major central banks may tighten policy in tandem with the Fed. - Rising US debt and policy uncertainty added to the dollar’s downside risk. - Strengthening Japanese yen, which rose over 0.2% to 155.88 per dollar, reflected expectations of a Bank of Japan rate hike and a reversal of carry‑trade flows. - Elevated oil prices continue to fuel inflationary pressures, supporting the view that the European Central Bank will lift rates to 2.75%.
## Implications for Global Markets
Analysts note that even if a September Fed hike materialises, the dollar is unlikely to reach new cyclical highs because other major central banks are also tightening, limiting policy divergence. Futures markets show a 75% chance of a further Fed hike to 3.0% by December, and similar odds for rate moves by the BOJ.
## Currency Movements
- Euro: marginally up at $1.1618. - Sterling: little changed at $1.3519. - Australian dollar: +0.12% to $0.7208. - New Zealand dollar: flat at $0.5880. - Bitcoin: steadied above $80,000, indicating diversification away from the dollar.
## Outlook
The dollar’s limited upside, combined with heightened geopolitical risk and global tightening, suggests continued volatility in foreign‑exchange markets. Investors should monitor upcoming US inflation data and any escalation in Middle‑East tensions for further direction.
## Shariah‑Conscious Takeaway
A weaker dollar can raise the cost of imported inputs for Pakistani manufacturers and increase debt servicing pressures for companies with foreign‑currency liabilities, while potentially benefitting exporters. Market participants should weigh these dynamics when assessing sector exposure.