Rising geopolitical tensions in the Middle East, combined with shifting Federal Reserve expectations, have ignited a surge in safe-haven asset purchases. Oil prices climbed 0.7% as the region braces for further conflict following an Israeli airstrike on Hezbollah positions in southern Lebanon.
In parallel, the Asia Dollar Index began the week on a strong note, advancing to its highest level since January. Traders are weighing the increasingly hawkish stance of local monetary authorities against the more dovish outlook from the Fed. The divergence in policy expectations is driving renewed interest in Asian currencies.
Federal Reserve Chair Jerome Powell’s eagerly anticipated speech at the Jackson Hole symposium has marked a pivotal moment in the central bank’s two-year effort to curb inflation. Powell’s remarks suggest that the Fed is poised to cut its benchmark interest rate, currently at its highest level in over two decades. While the U.S. economy is showing signs of cooling, indicating a potential shift in policy, there is no clear evidence of an impending recession.
As the U.S. economy appears to be on track for a soft landing, a strong rally in Asian currencies is expected during this Fed easing cycle. Meanwhile, gold prices have stabilized near record highs following Powell’s confirmation of anticipated rate cuts. The precious metal has surged more than 20% this year, fueled by expectations of Fed policy shifts, heightened geopolitical risks, and robust demand from central banks and Asian consumers.