The US dollar remains under pressure despite the escalation of political confrontation between the States and Iran, which could escalate into a military one.

Usually, earlier in such periods when military conflicts are brewing, the US dollar has always been in demand as a safe-haven currency. However, the last crisis of 2008–09 seems to have changed this picture and possibly forever. The situation shows when America itself is drawn into a probable military conflict forces investors to take noticeable caution and place their capital not only on the traditionally reliable market of government bonds of the US Treasury but also on other capital markets of economically developed countries. At the same time, it aims to look for higher returns on bond markets emerging economies (EM).

The pressure on the dollar is exerted not only by the current picture but also by the expectation that the Fed will have to lower interest rates, primarily against the background of signals of the American economy, which negatively affects the yield of treasuries and boomerang at the rate of the American currency.

Earlier last week, after the Central Bank's monetary policy meeting, some members of the Federal Reserve made it very clear that they were inclined to reduce the cost of borrowing. This again became the basis for the weakening of the dollar. Today, the head of the American regulator Jerome Powell will speak, who if he allows himself to confirm the opinions of his colleagues regarding the prospects for the bank's monetary policy, will undoubtedly lead to a new wave of dollar sales.

However, despite such an obvious possible reaction, we believe that it can be restrained because of the expectation by the markets of the planned meeting of Donald Trump and Xi Jinping in the sidelines of the G-20 in Osaka, Japan. Investors are still hoping for a breakthrough in the trade war between Washington and Beijing and for the conclusion of a new trade agreement. These hopes continue to be supported by considerations of common sense, however, it still leaves America often as shown in recent events.

Forecast of the day:

The EUR/USD pair is below the level of 1.1410. It has every chance to continue rising towards 1.1475 if Powell does not deny the possibility of the Fed lowering interest rates this year.

The USD/JPY pair is trading at 107.00. The weakness of the dollar, as well as lingering concerns about the conflict between the US and Iran in the Middle East, puts a lot of pressure on the pair. We expect its fall to continue to 106.35.