Dollar poised for its first monthly rise since October
The dollar is poised for its first monthly gain since October on Friday, supported by rising geopolitical tensions, while the yuan has lost momentum following China’s decision to halt a prolonged rally in the currency. The Australian dollar, meanwhile, was poised for a fourth consecutive monthly gain, driven by expectations that the central bank will move towards increasing interest rates, as the economy continues to advance. In recent developments, officials from both Pakistan and Afghanistan reported that Pakistan conducted bombings targeting Taliban government positions in major Afghan cities overnight. Pakistan’s defence minister characterized the situation as a “open war.” On Thursday, representatives from the U.S. and Iran advanced discussions regarding Tehran’s nuclear program, according to the mediator Oman. However, there were no indications of a significant breakthrough that might prevent possible U.S. military action in light of a substantial military buildup.
The sentiment in global markets has been tenuous this week, as investors evaluate the possible impact of artificial intelligence on businesses and the broader economy, leading to a shift in capital towards the relative security of gold and the dollar. The dollar has been exhibiting a somewhat stable trading pattern. “It appears to be anticipating its next significant catalyst,” remarked Fiona Cincotta. There are challenges ahead – apprehensions regarding policy ambiguity, tariffs, and the absence of clear direction in that area. Tailwinds – the potential for the Fed to maintain interest rates at their current levels for an extended period is favorable; additionally, there is a modest safe-haven demand stemming from geopolitical uncertainties,” she stated. However, it seems that there isn’t a clear factor currently propelling the market movements. The dollar has appreciated approximately 0.6% against a range of currencies this month, supported by indications from Federal Reserve policymakers that further rate cuts are not guaranteed, with several showing a willingness to consider rate hikes should inflation stay high. Market participants anticipate two additional rate reductions this year, although these are not expected to occur before June.
The yuan paused its 10-day rally as the People’s Bank of China intervened on Friday to moderate the rate of increase. The decision was made to eliminate the foreign exchange risk reserves for certain forward contracts, which is perceived as a strategy to promote dollar purchasing. The combination of that factor and a weaker-than-anticipated yuan midpoint fix resulted in the onshore yuan declining by 0.2% to 6.8553 per dollar. It has still gained approximately 2% thus far this year, following an appreciation of over 4% in 2025.”It is clear that the PBOC wants the yuan appreciation pace to slow,” stated experts. Recent gains may indicate that China has gained leverage following the U.S. Supreme Court’s decision to quash President Donald Trump’s tariffs. This month, the currency market has been significantly influenced by the potential divergence in global interest rates. The Australian dollar experienced an increase of 0.12%, reaching a value of $0.7115. This currency has emerged as the top performer among G10 currencies this year, achieving a notable gain of 6%. The Bank of Japan is poised to increase rates; however, this has had minimal impact on the yen, as domestic political factors complicate the rate outlook, even with BOJ Governor Kazuo Ueda indicating a willingness for a near-term hike.
The Japanese currency has depreciated over the course of February, resulting in the dollar appreciating by nearly 0.9%. On Friday, it was priced at 156.17 yen. Sterling maintained its position at $1.348, poised to end a three-month streak of increases with a 1.4% decline in February. A local election in Manchester on Thursday resulted in a significant victory for Britain’s Green Party, marking a setback for Prime Minister Keir Starmer’s Labour party, which has experienced a notable decline in popularity over the past year. Sterling exhibits a notable sensitivity to domestic political developments. However, with several risk events on the horizon, including the upcoming budget update from finance minister Rachel Reeves, any potential volatility remains contained. “While it provides valuable insights into Labour’s position, it doesn’t adequately set Keir Starmer on a trajectory towards departure,” stated Cincotta. The euro maintained stability, trading near $1.18, poised for a monthly decline of 0.4%.
