Yaser Rawashdeh, Head of Middle East Trading at Saxo Bank, said that the rise of the US dollar amid escalating geopolitical tensions in the Middle East is due to changing expectations of US monetary policy and increased demand for the US currency as a safe haven, along with fears of a return of inflationary pressures due to higher energy prices.

Rawashdeh added, in an interview with 'Al Arabiya Business', that markets have witnessed the same scenario during previous waves of tension, where rising energy prices increase concerns about inflation, prompting investors to reprice expectations of US interest rates, which benefits the dollar.

He explained that markets had expected several interest rate cuts at the beginning of the year, but these expectations gradually changed, and the US Federal Reserve has become among the most hawkish central banks compared to others.

He pointed out that the European Central Bank has already started a rate hike cycle, but is currently facing more contained inflation, while the Bank of Japan is still moving at a much slower pace, which enhances the attractiveness of the dollar compared to other major currencies, in addition to continued investor appetite for US assets.

Anticipation for the minutes of the first meeting under Kevin Warsh

Regarding the upcoming Federal Reserve meeting minutes, which is the first meeting chaired by Kevin Warsh, Rawashdeh said that markets will monitor several key points, foremost whether the style of the minutes will differ from previous meetings, especially after Warsh's talk about reducing reliance on forward guidance.

He added that investors will focus on the extent of agreement among Fed members on reducing the use of forward guidance, in addition to their assessment of the path of inflation and economic growth, and whether there was a discussion within the meeting about the possibility of raising interest rates in July or determining the level that might push the Fed to tighten monetary policy.

He also indicated that any signals related to the Fed's balance sheet management will be closely monitored, noting that the importance of the minutes increases amid quiet European economic data during the summer, along with ongoing geopolitical developments in the Middle East.

Rising bond yields reflect inflation fears

Regarding the rise in the US 30-year Treasury yield above 5%, Rawashdeh explained that the reason is due to escalating concerns related to government fiscal spending, along with continued worries about the return of inflation, especially with rising energy prices.

He added that markets are also monitoring whether the tensions in the Middle East will be temporary or prolonged, because their continuation could keep inflationary pressures high and lead to continued rise in long-term bond yields.

He pointed out that markets are also waiting for any surprises the Fed minutes may bring, considering that any change in the central bank's tone will be among the main market drivers in the coming period.

Dollar strength more than euro weakness

In response to a question about whether the euro's decline below 1.14 against the dollar reflects weakness in the European currency or strength of the dollar, Rawashdeh confirmed that what markets are currently witnessing is strength in the dollar rather than weakness in the euro.

He added that current indicators are more in favor of the US currency compared to the euro and Japanese yen, noting that the continued weakness of the yen, in the absence of decisive intervention from the Bank of Japan, also supports continued rise in US yields and enhances the dollar's attractiveness in the coming period.

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