NEW YORK — June 24, 2025: The US dollar fell on Monday after Federal Reserve Vice Chair for Supervision Michelle Bowman signaled that interest rate cuts may be on the horizon, softening the greenback's earlier gains that followed heightened geopolitical tensions.
Speaking on Monday, Bowman expressed growing concern over potential risks to the US labor market and downplayed fears that the Trump administration’s tariffs would significantly reignite inflation.
“The time to cut interest rates may be fast approaching,” she said, signaling a shift in tone that investors interpreted as dovish.
This marked a reversal from last week’s “hawkish hold” when the Federal Reserve left interest rates unchanged. At that time, Fed Chair Jerome Powell noted expectations of a summer uptick in inflation due to new tariffs.
Powell is scheduled to testify before the US Congress on Tuesday and Wednesday, and markets will be closely watching for further clues on the Fed's policy direction.
Geopolitical Backdrop: Iran Tensions
Earlier in the day, the dollar had rallied after reports emerged that the US had bombed nuclear sites in Iran, escalating concerns of a broader Middle East conflict. In response, Iran threatened to close the Strait of Hormuz, a key global oil supply route through which nearly 20% of the world's oil passes.
These developments caused risk-averse investors to flee to safe-haven assets and unwind positions in riskier markets.
“What it really is about is unwinding these funding trades, where the dollar is a short leg of the trade,” said Marc Chandler, Chief Market Strategist at Bannockburn Global Forex.
“I don’t think it’s a big turn in the dollar,” he added, suggesting the move may be temporary.
FX Market Snapshot
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The US dollar index slipped 0.14% to 98.78, after touching a high of 99.42 earlier in the session — the strongest level since May 30.
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The Japanese yen weakened by 0.45%, trading at 146.77 per dollar, and touched 148.02 — its weakest point since May 13 — as oil price concerns weighed on the energy-dependent economy.
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The euro edged up 0.08% to $1.1528, despite weak economic data from the euro zone, where a recent survey showed continued stagnation in both the services and manufacturing sectors.
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Bank of America noted that if oil prices remain high, USD/JPY could reprice higher due to Japan’s dependence on Middle East oil imports, in contrast to the US, which remains largely energy-independent.
Meanwhile, Goldman Sachs analysts identified potential winners from higher oil prices, including the Norwegian krone, Canadian dollar, and Colombian peso. The Swiss franc, known for its safe-haven appeal, may also gain if geopolitical tensions intensify.
Market Outlook
Despite the immediate volatility, analysts suggest that markets are still seeking clear direction. As Goldman Sachs pointed out, Monday's price action showed no consistent correlation between currencies and their historical sensitivities to oil prices or geopolitical risk, possibly reflecting muted reactions across oil, gold, and equity markets.
With Powell’s congressional testimony up next, traders are bracing for more volatility — and potential confirmation of a shift in Fed policy.
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