Dollar's Dance: Interest Rates and Geopolitical Tensions Shake Markets

The dollar experienced volatility ahead of the Federal Reserve's decision on interest rates, influenced by geopolitical events such as Turkish political tensions and Israeli airstrikes on Gaza. Despite initial market reactions, the Fed is expected to maintain current rates amidst concerns over U.S. economic policies and global risks.

The dollar saw a rise on Wednesday as markets awaited the Federal Reserve's decision on interest rates, only to retreat after stabilizing from earlier geopolitical tensions. The detention of Tayyip Erdogan's main rival in Turkey initially jolted global currencies, prompting investors to salvage safe-haven assets.

While markets anticipate the Fed to hold interest rates steady, investors are concerned with how President Trump's policies will influence the U.S. economy and subsequent rate decisions. Meanwhile, the Bank of Japan's steady rate decision has investors pondering its impact amidst rising global risks.

Geopolitical tensions, such as Israeli airstrikes in Gaza and stalled U.S.-Russia talks on Ukraine, continued to impact risk-sensitive currencies. Consequently, the dollar experienced brief fluctuations against various currencies, reflecting broader economic uncertainties and anticipation of the Fed's policy stance.

(With inputs from agencies.)