Dollar Strengthens in Advance to ZEW

On Tuesday, the dollar was mostly higher in early trading in Europe. This was after worries of a sustained spike in oil prices and conflict in the Persian Gulf undermined risk assets ahead of the U.S. Federal Reserve’s two-day policy conference.

The Fed had been almost universally anticipated to cut the target range for the Fed funds rate by 25 basis points at this week’s meeting.

Meanwhile, when the stronger-than-expected retail sales and customer sentiment data came with prospects of a breakthrough in the trade dispute with China, it has appeared to wane the argument for easing.

The spike in oil prices since the weekend attack on Saudi Arabia has added some uncertainty. This is because it’s likely to lead to some inflationary pressure as long as oil prices stay lifted.

According to a news report, the Fed rate monitor tool shows a chance of a rate cut on Wednesday. It has now plunged to less than 65%.

However, analysts at ING said that the main effects of an oil shock are still essentially bullish for the dollar.

Further Concerns on The Oil Shock

In a research note, a global head of foreign exchange and rates strategy, Chris Turner, said, “The Fed turns exceptionally dovish and worried that an oil shock undermines the key source of U.S. growth, consumption.”

He also added, “Then it looks like the dollar can stay relatively bid and EUR/USD sinks into a 1.05-1.10 range into year-end.”

The euro was at $1.1012. It was together with the market observing on the first major confidence indicator of the month, the German ZEW index.

The dollar index, which tracks the greenback against a basket of major currencies, was at 98.185.

It was a little changed from late Monday but making gains against sterling, commodity currencies such as the Aussie and kiwi, and also against emerging currencies.

The British pound remained under tension after Prime Minister Boris Johnson’s visit to Luxembourg on Monday.

It has again demonstrated the lack of improvement toward sealing a transitional deal with the European Union before Brexit takes place on Oct. 31.

The U.K. Supreme Court is due to start hearings on Tuesday. This is regarding on the lawfulness of Johnson’s suspension of parliament, which his opponents claim was done specifically to stop the House of Commons debating Brexit.

Meanwhile, a ruling is expected any time after Thursday.