Dollar Holds Losses as Risk Appetite Flickers Ahead of Central Bank Meetings

Dollar Dips as Markets Await Central Bank Decisions Amid Renewed Risk Appetite

Market Movements and Central Bank Anticipation

By Rocky Swift

Dollar and Major Currencies Performance

TOKYO, March 18 (Reuters) - The dollar held losses on Wednesday as a glimmer of risk appetite came back to markets ahead of a slate of key central bank decisions.

Yen and Euro Movements

The yen rallied from levels that conjured concerns of intervention in markets by Tokyo ahead of Japanese Prime Minister Sanae Takaichi's meeting in Washington with President Donald Trump. The euro was stable after two days of gains ahead of the European Central Bank's meeting later in the day.

Safe Haven Status and Middle East Crisis

The greenback has gained as the only remaining haven currency during the Middle East crisis that is now in its third week. Overnight, Tehran confirmed Iran's security chief Ali Larijani was killed by Israel, the most senior figure targeted since the U.S.-Israeli war's first day.

Analyst Insights on Volatility

"Volatility has settled largely due to relatively benign price action in energy markets overnight. But the risks haven't diminished at all," said Kyle Rodda, a senior analyst at capital.com. "If anything, it could cause a rapid risk-on move in the markets, it's the U.S. seemingly wresting control of the Strait from the Iranians."

Currency Indexes and Recent Highs

The dollar index, which measures the greenback against a basket of currencies, traded at 99.56 after a two-day decline. The euro was little changed at $1.1538.

The yen strengthened 0.06% to 158.91 per dollar. Sterling held steady to $1.3353.

The dollar reached a 10-month high at the end of last week as the Middle East conflict and rising oil prices prompted investors to seek safety in U.S. assets.

Geopolitical Developments Impacting Markets

Diplomatic Shifts and Trade Concerns

In a sign of how the crisis is upending diplomacy and trade, Trump on Tuesday said he was postponing a highly anticipated trip to Beijing to meet with Chinese President Xi Jinping. Trump had been set to travel to Beijing from March 31 to April 2 for the first trip there of his 14-month-old second term. 

Japanese PM Takaichi is due to depart for her meeting with Trump on Wednesday evening.

Central Bank Policy Outlook

The U.S. Federal Reserve will announce its policy decision on Wednesday, with the ECB, the Bank of England and the Bank of Japan following a day later. They are all expected to keep rates unchanged although traders will be looking out for commentary about inflation and economic outlook amid the U.S.-Israeli war with Iran.

Expectations for Federal Reserve easing have also been scaled back, with markets now assigning about 25 basis points of cuts this year. Traders are pricing in almost two European Central Bank rate hikes in 2026, a sharp shift from the roughly 50% chance of a cut seen before the conflict began.

Other Currencies and Crypto Market Update

The Australian dollar strengthened 0.06% versus the greenback to $0.7106. New Zealand's kiwi weakened 0.02% to $0.5856.

In cryptocurrencies, bitcoin fell 0.48% to $74,193.50 and ether declined 0.04% to $2,327.66.

(Reporting by Rocky Swift; Editing by Sam Holmes)