Bank of America: Geopolitical risks support the dollar, FOMC meeting outlook and prospects

Investing.com - Bank of America states that in the current environment, Wednesday’s Federal Open Market Committee (FOMC) meeting is unlikely to be a key event for the dollar. The institution notes that no policy changes are expected, while geopolitical-driven uncertainties are increasing daily, providing support for the dollar.

Bank of America indicates that Chair Powell’s overall messaging and tone may emphasize these growing uncertainties. Any hawkish statements regarding inflation or growth risks could be quickly absorbed by the forex market.

The institution states that the dollar market should still be primarily driven by headlines, with the oil market leading the pace. As long as current events continue to exert upward pressure on oil prices, the upside risk for the dollar will persist, especially against currencies more susceptible to trade condition shocks, including the euro, pound, yen, Swedish krona, New Zealand dollar, and Swiss franc.

Bank of America notes that any gains in the dollar against currencies better able to withstand oil price fluctuations (including the Australian dollar, Canadian dollar, and Norwegian krone) will be driven by overall market risk sentiment. The movement of the dollar against most G10 currencies has somewhat eased due to broader central bank re-pricing.

The institution states that interest rate hikes are global, and the Federal Reserve is currently the only G10 central bank not priced in for potential rate increases this year. Amid growing concerns over global growth, any further reduction in expectations for Fed rate cuts should continue to support the dollar.

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