The U.S. dollar advanced on Wednesday as escalating tariff threats from President Donald Trump and rising energy prices fueled demand for safe-haven currencies. The dollar gained against the euro, yen, and British pound, supported by a surge in natural gas prices and geopolitical tensions surrounding Ukraine peace talks.
Geopolitical Tensions and Tariff Threats Drive Dollar Demand
Tariff Threats and Political Rhetoric
- President Donald Trump escalated geopolitical tensions by labeling Ukrainian President Volodymyr Zelenskiy as a “dictator without elections,” following accusations from Zelenskiy that Trump is trapped in a “disinformation bubble.”
- Trump’s tariff policies continue to fuel market volatility, with the latest round of threats targeting China and Europe. These measures have revived fears of a global trade war, supporting the dollar as a safe-haven asset.
Rising Energy Prices
- Natural gas prices surged to their highest level since December 2022, driven by supply concerns and rising demand. The rally in energy prices boosted the dollar’s appeal as a haven currency, as investors sought protection against inflationary pressures.
Fading Risk Appetite and Safe-Haven Flows
- The geopolitical turmoil and tariff uncertainties triggered a flight to safety, with investors flocking to the dollar, Swiss franc, and Japanese yen.
- Safe-haven demand was further bolstered by rising U.S. Treasury yields, underpinned by strong energy prices and cautious market sentiment.
Currency Market Performance
EUR/USD: Slumps on Geopolitical Concerns
- EUR/USD fell for the third consecutive day, pressured by geopolitical tensions and rising U.S. Treasury yields. The pair was also affected by concerns about Ukraine peace talks and potential European defense spending.
- Technical indicators point to further downside risks, with converging 55-day and 21-day moving averages near 1.04 providing nearby support. Stochastic indicators favor EUR/USD bears, suggesting a bearish outlook.
GBP/USD: Retreats After Strong UK Inflation Data
- GBP/USD fell after a stronger-than-expected UK inflation report increased the likelihood of the Bank of England maintaining a hawkish stance.
- UK CPI data surprised to the upside, supporting the pound temporarily before profit-taking set in.
- Technical resistance is seen at the 100-day moving average (1.2659), which may limit the pair’s upside potential.
USD/JPY: Steady Amid Low Volatility and BOJ Uncertainty
- USD/JPY remained range-bound as yen long positions reached record highs, creating headwinds for further yen strength.
- Implied volatility remained low, suggesting limited momentum for the pair, which is expected to trade between 148 and 155 until a new market catalyst emerges.
- Bank of Japan rate hike expectations are growing, but positioning risks could limit the yen’s gains.
Commodity Currencies: Weighed Down by Tariff Concerns
- The Australian dollar and Canadian dollar struggled as commodity prices remained volatile amid tariff uncertainties.
- AUD/USD eased ahead of Australian employment data and comments from the Reserve Bank of Australia’s Andrew Hauser.
Market Sentiment and Economic Outlook
Geopolitical Risks and Market Uncertainty
- Investors remain cautious as geopolitical tensions and tariff threats dominate market sentiment.
- Trump’s rhetoric and escalating trade conflicts are expected to continue influencing currency markets, particularly for EUR/USD, USD/JPY, and GBP/USD.
Energy Prices and Inflation Concerns
- Rising energy prices are driving inflationary pressures, supporting the dollar while weighing on yen bulls who were banking on easing energy prices to support Japan’s economy.
FOMC Minutes and Fed Policy Outlook
- The FOMC Minutes revealed a cautious Federal Reserve, maintaining a balanced outlook on inflation and employment.
- The market remains divided on the likelihood of a rate cut in June 2025, with STIR futures pricing a 50% chance of a 25bp cut.
Technical Analysis and Key Levels to Watch
EUR/USD
- Support: 1.04 (55-day and 21-day moving averages convergence)
- Resistance: 1.0532 (January high)
- Stochastic indicators favor bears, suggesting downside risks.
GBP/USD
- Support: 1.2573 (Daily cloud top)
- Resistance: 1.2659 (100-day moving average)
- Bullish trend remains intact, but profit-taking could limit gains.
USD/JPY
- Support: 151.20 (Technical support zone)
- Resistance: 155 (Upper range limit)
- Positioning risks and low volatility suggest a range-bound outlook.
Bottom Line: Dollar’s Upward Momentum Set to Persist
The dollar’s strength is likely to continue as geopolitical tensions, rising energy prices, and tariff threats support safe-haven demand. Investors are expected to remain cautious amid Trump’s aggressive trade policies and growing global economic uncertainties.
- EUR/USD and GBP/USD face downside risks as safe-haven demand strengthens.
- USD/JPY is likely to remain range-bound until a clearer policy direction emerges from the Bank of Japan.
- Commodity currencies may remain under pressure amid ongoing trade tensions and volatile energy prices.
With geopolitical developments, tariff announcements, and energy price movements shaping market dynamics, traders are advised to stay vigilant and watch for further policy updates and economic indicators.
Stay tuned for more updates as the global economic landscape continues to evolve.
