Dollar wobbles as investors monitor Israel-Iran conflict ahead of Fed decision
18 June 2025 10:17
WASHINGTON (REUTERS)The US dollar wavered against most major currencies on Wednesday, as fighting between Israel and Iran left investors nervous ahead of a keenly awaited Federal Reserve decision on interest rates later in the day.The dollar has found support as a safe haven, firming roughly 1% against the Japanese yen, Swiss franc and euro since Thursday and helping it to shave declines from earlier in the year.The greenback had lost more than 8% so far this year due to eroding confidence in the US economy due to President Donald Trump's trade policies."The dollar is still a safe haven because of its depth and liquidity, so, yes the structural forces are diluting the dollar safe-haven activities, but they're not eroding them completely," said currency strategist Rodrigo Catril at National Australia Bank."But in a scenario of big risk aversion, the dollar will still gain support but maybe not to the same extent it has managed in the past."The dollar wavered between small gains and losses against the yen and had touched a one-week top in early Asia trading hours. The greenback was last down 0.2% and fetched 144.90 yen.The Swiss franc was flat at 0.816 per dollar and the euro edged up 0.2% at $1.150.A broader index tracking the greenback against six other currencies slipped 0.1% after a 0.6% jump in the previous trading session.An increase in crude oil prices to about $75 a barrel has also weighed on the euro and yen given the European Union and Japan are primarily net crude importers as opposed to the US, which is a net exporter.Investors' next point of focus is the Fed, which is set to decide whether to change its interest rates.Recent data showed the US economy was slowing as Trump's policymaking style increased uncertainty. Higher crude prices due to conflict in the Middle East are also complicating the Fed's task.Traders expect the central bank to leave borrowing costs unchanged and will be keen to hear the Fed's outlook for interest rates this year and the overall health of the economy.A weekly report on jobless claims is expected later in the day out of the US, while on the policy front, central bank decisions are also due from Switzerland, Norway, and Sweden later in the week.In Britain, sterling firmed 0.26% to $1.346 as markets assessed data that showed inflation cooled as expected to an annual rate of 3.4% in May, ahead of the Bank of England's policy verdict on Thursday.An area of frustration for investors was a Group of Seven meeting in Canada yielding little on the tariff front, ahead of Trump's early July deadline for additional levies.
Trump said Japan was being "tough" in trade talks and the European Union had not yet offered what he considered a fair deal.
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Regional transformation Israel, by contrast, has maximised the tools at its disposal - military technological superiority, an intelligence edge, and influence and information operations - to set the terms of Washington's Middle East policy. That these moves run counter to long-term US interests seems immaterial. Netanyahu, who since the 1980s has been a vocal neoconservative advocate for drawing the US into military interventions in Iraq and Iran, is not interested in inclusive regional stability. He wants to dictate a regional transformation according to an Israeli interpretation of friend and foe. His regime change fantasies appear now finally within reach. But Iran is not Iraq. Neither the US nor Israel is likely to put boots on the ground. Instead, what's emerging is a long-term strategy of degradation - hollowing out the Islamic Republic, one missile and air strike at a time. Assassinating Supreme Leader Ali Khamenei would set in motion a potentially long and contested succession crisis. The endgame may be a military-industrial dictatorship dominated by the Islamic Revolutionary Guard Corps (IRGC), or a failed state where power remains concentrated in a besieged Tehran. Israel could retreat behind its buffers in Jordan and Iraq, while the Gulf states would inherit the instability to come. The Gulf would be left next to a broken neighbour with porous borders and contested sovereignty, and full of armed networks operating, as they have for decades, almost autonomously - networks that would not disappear, but reconstitute as fragmented nodes of resistance, trading arms and ideology in equal measure. Indeed, the greatest irony may be that by trying to eliminate the state behind the IRGC, Israel will only make the IRGC more ungovernable. Emerging order The Shia Islamist militant networks predate the Islamic Republic, having operated in the Lebanese Civil War before the Iranian Revolution. Stripped of a central authority, these networks will adapt and mutate, becoming less accountable and less deterrable. The emerging regional order will be one without balance. Israel, a destructive hegemon, is effective at degrading its foes, but lacks the will, legitimacy and capacity to build anything durable in their place. The Gulf, meanwhile, will remain surrounded by hostile non-state actors - Hezbollah, the Houthis and various Iranian paramilitary groups - now decoupled from Tehran, but no less lethal. Occasional containment strikes by Israel may limit their capacity, but the region will be unlikely to reach an equilibrium of stability. Worse still, Israel's trajectory under Netanyahu is taking the state towards a Jewish fundamentalism that is increasingly isolationist, belligerent and indifferent to the interests of its Arab neighbours - let alone the Palestinians it occupies. Such a state is ill-suited to be a pillar of any consensual regional order. Instead, it acts as a strategic wrecking ball: shattering balances, but incapable of setting new ones. Why Israel's attacks are backfiring as Iranians rally around the flag Read More » Amid this backdrop, the Gulf states must embrace their role as strategic players, not just financiers. This means transforming their influence into leverage. They should not only rebuild the Gulf lobby in Washington to represent their interests, but also actively coordinate pressure on the Trump administration to re-engage with diplomacy, not escalation. A Qatari-Omani diplomatic bridge between the Trump administration and Tehran appears to be already in the making. Secondly, they must draw on their diverse geopolitical partnerships. A multipolar world gives the Gulf states options outside of Washington. China and Russia may not replace the US, but their growing footprint allows for hedging strategies. Aligning more closely with Beijing on economic integration, or with Moscow on security dialogues, creates external pressure on the US to take Gulf concerns more seriously. Finally, the Gulf states must recognise that they are indispensable not just financially or diplomatically, but also strategically. They sit at the centre of energy, trade, and the geo-strategic buffer zone between the Global East and West, as well as North and South. Their ability to mediate, to finance peace, to engage adversaries, and to balance great powers is unique. But they need to develop the confidence to use this power. The Gulf has a choice. It can rise to shape the future of the Middle East - or be left cleaning up its ruins. The views expressed in this article belong to the author and do not necessarily reflect the editorial policy of Middle East Eye.
