The US dollar held steady on Wednesday as investors maintained limited risk appetite amid ongoing concerns about an escalation of the war in the Middle East.

Although signals suggesting a possible quick end to the war between the United States and Israel on one side and Iran on the other helped cap the dollar’s gains, conflicting developments left traders without a clear direction.

US President Donald Trump suggested on Monday that the war could end sooner than expected, which helped riskier assets recover. However, Iran continued disrupting oil shipments through the Strait of Hormuz, angering Washington.

Chris Beauchamp said: “The market doesn’t believe the conflict is close to being resolved. Investors are eager to hear positive news, but they are unlikely to get it anytime soon.”

Currency moves

The euro held steady at $1.1607 after rising about 0.3% earlier in the session.

The Japanese yen slipped slightly to ¥158.26 per dollar.

The dollar index, which measures the US currency against a basket of six major currencies, edged up slightly to 98.95.

Analysts at Capital Economics noted that the conflict’s impact on global growth and inflation will depend on the duration and scale of energy price increases, which remain uncertain. They added that an extreme scenario—where the conflict lasts several months and damages energy infrastructure—could push the global economy toward stagflation and lead to higher interest rates across most economies.

Oil volatility and uncertainty

Oil prices recovered on Wednesday after earlier losses in the session, amid doubts about whether a potential plan by the International Energy Agency to release oil reserves would be sufficient to offset any supply shock.

Khalid Azim said financial markets can absorb major shocks if the strategic path is clear, adding: “What markets truly suffer from is uncertainty.”

As the conflict entered its twelfth day, the United States and Israel exchanged airstrikes with Iranian forces across the Middle East, while the Iranian government warned that its security forces were ready to confront any potential internal protests.

Monetary policy outlook

Traders are cautiously pricing risks. Christina Clifton said expectations suggest the war may last months rather than weeks, keeping uncertainty elevated.

US interest rate futures indicate markets are pricing about 39.7 basis points of rate cuts by the end of the year, reflecting doubts about the possibility of a second rate cut this year.

Markets have also begun pricing the possibility of a rate hike by the European Central Bank over the past week, although policymakers have stressed the need to wait and reassess monetary policy.

Upcoming economic data

Investors are also awaiting the release of US inflation data for February later on Wednesday. Economists surveyed by Reuters expect core inflation to rise 0.2% during the month and headline inflation to increase 0.3%.

Gold prices rose in European trading on Wednesday, continuing to move in positive territory for the second consecutive day, hovering near a one-week high as the US dollar weakened against a basket of global currencies.

With oil prices declining in global markets, fears of accelerating inflation in the United States have eased, reviving expectations of Federal Reserve interest rate cuts. Investors are now awaiting the release of key US inflation data later today to reassess those expectations.

Price Overview

Gold prices today: gold rose 0.6% to $5,223.09, up from the session opening level of $5,192.02, after touching a low of $5,175.75.

At Tuesday’s settlement, gold prices gained 1.05%, reaching a one-week high of $5,238.60 per ounce.

US Dollar

The dollar index fell 0.2% on Wednesday, resuming losses that had briefly paused in the previous session and trading near a one-week low, reflecting the weakness of the US currency against a basket of major and secondary currencies.

The decline comes as demand for the dollar as a preferred safe-haven asset slows, with growing hopes that the Iran war may soon end following intensified US diplomatic efforts to reach a ceasefire agreement through Russian mediation.

Global oil prices

Global oil prices fell about 5% on Wednesday after the Wall Street Journal reported Tuesday that the International Energy Agency proposed the largest release of oil reserves in its history to rebalance a market severely strained by the fallout from the Iran war and the closure of the Strait of Hormuz.

US interest rates

According to the CME FedWatch tool from CME Group, markets are pricing a 99% probability that US interest rates will remain unchanged at the March meeting, while the probability of a 25-basis-point rate cut stands at 1%.

Markets are also pricing an 87% probability that rates will remain unchanged at the April meeting, while the probability of a 25-basis-point rate cut stands at 13%.

US inflation data

To reassess these expectations, traders are awaiting the release of key US inflation data for February later today, which is expected to influence the Federal Reserve’s monetary policy path this year.

Gold outlook

Bart Melek, global head of commodity strategy at TD Securities, said: “Oil prices have declined from their peak above $100 — which still contributes to inflation and therefore supports gold.”

He added: “Oil prices are no longer high enough to significantly restrict the Federal Reserve’s ability to cut interest rates — investors feel reassured that the currency debasement trade could return over time.”

SPDR fund

Holdings of the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, increased by 2.87 metric tons on Tuesday, bringing the total to 1,073.57 metric tons, rebounding from 1,070.70 metric tons, which had been the lowest level since January 9.

The euro rose in European trading on Wednesday against a basket of global currencies, resuming gains that had briefly paused yesterday against the US dollar, and moving higher toward a one-week high as the US currency weakened ahead of key US inflation data.

The single European currency was also supported by falling global oil prices after a Wall Street Journal report indicated that the International Energy Agency is considering the largest release of oil reserves in its history.

Price Overview

Euro exchange rate today: the euro rose more than 0.2% against the US dollar to $1.1636, up from the opening level of $1.1611, and recorded a low of $1.1603.

The euro closed Tuesday’s session down 0.2% against the dollar, marking its first loss in the past three days after earlier reaching a one-week high of $1.1667.

US Dollar

The dollar index fell 0.2% on Wednesday, resuming losses that had briefly paused in the previous session and trading near a one-week low, reflecting weakness in the US currency against a basket of major and secondary currencies.

The decline comes as demand for the dollar as a preferred safe-haven asset slows, with growing hopes that the Iran war may soon end following intensified US diplomatic efforts to reach a ceasefire agreement through Russian mediation.

Later today, key US inflation data for February will be released, which could provide strong and decisive signals regarding the likelihood of the Federal Reserve cutting interest rates during the first half of this year.

Global oil prices

Global oil prices fell about 5% on Wednesday after the Wall Street Journal reported Tuesday that the International Energy Agency had proposed the largest release of oil reserves in its history in order to rebalance a market heavily strained by the fallout from the Iran war and the closure of the Strait of Hormuz.

European interest rates

Money markets are currently pricing about a 5% probability that the European Central Bank will cut interest rates by 25 basis points in March.

To reassess these expectations, investors are awaiting further economic data from the eurozone on inflation, unemployment, and wage growth.

The Australian dollar rose in Asian trading on Wednesday against a basket of global currencies, extending gains for the fourth consecutive day versus the US dollar and reaching its highest level in four years, supported by the decline of the US currency ahead of key US inflation data.

The deputy governor of the Reserve Bank of Australia warned that the sharp rise in oil prices could push inflation higher and increase pressure for an interest rate hike at next week’s monetary policy meeting.

Price Overview

Australian dollar exchange rate today: the Australian dollar rose 0.9% against the US dollar to 0.7182, the highest level since June 2022, up from the session opening at 0.7119, and recorded a low of 0.7113.

The Australian dollar closed Tuesday’s trading up about 0.6% against the US dollar, marking its third consecutive daily gain amid improving risk sentiment in global markets.

US Dollar

The dollar index fell 0.2% on Wednesday, resuming losses that had briefly paused in the previous session, trading near a one-week low and reflecting weaker performance of the US currency against a basket of major and secondary currencies.

The decline comes as demand for the dollar as a preferred safe-haven asset slows, with growing hopes that the Iran war may soon end following intensified US diplomatic efforts to reach a ceasefire agreement through Russian mediation.

Later today, key US inflation data for February will be released, which could provide strong and decisive signals about the likelihood of the Federal Reserve cutting interest rates during the first half of this year.

Reserve Bank of Australia

Deputy governor of the Reserve Bank of Australia, Andrew Hauser, warned on Tuesday that the sharp increase in oil prices could push inflation higher and increase pressure to raise interest rates at next week’s monetary policy meeting.

Australian interest rates

Clifton from the Commonwealth Bank of Australia said the war in the Middle East has had major implications for central bank interest rate expectations.

He added that since the outbreak of the conflict at the end of February, markets have shifted either from pricing in rate cuts to pricing in rate hikes, or to expecting fewer rate cuts than previously anticipated.

Markets are currently pricing about an 80% probability that the Reserve Bank of Australia will raise interest rates by 25 basis points next week, while the probability of a 25-basis-point hike in May stands at around 95%.