The US Dollar held steady near five-month lows after the Federal Reserve decided to leave interest rates unchanged as expected. Fed Chair Jerome Powell struck a cautious tone, emphasizing that there is no hurry to adjust policy. However, ongoing trade tensions could fuel inflationary risks and might provide temporary support for the US dollar if the Fed takes a hawkish stance.

However, dovish signs could exert pressure on the currency and yields. The announcement of a reduction in the pace of the Fed’s holdings redemption from USD 25 billion to USD 5 billion per month could weigh on the currency. Expectations of interest rates this year could also affect the market to the downside.

Looking forward, geopolitical tensions could also play a pivotal role in shaping the dollar’s trajectory. Diplomatic progress in Eastern Europe could boost risk appetite, pressuring the currency, while heightened tensions in the Middle East could trigger risk aversion, driving demand for safe-haven assets like the U.S. dollar.