Dollar weakens as global central banks signal rate hikes amid energy shocks

The United States Dollar retreated from multi-month highs this week as global monetary policy expectations shifted in response to rising energy prices and geopolitical tensions.

According to a Reuters report, the Federal Reserve is now the only major central bank not expected to raise interest rates this year, even as peers signal tightening measures to curb inflation.

Data showed the dollar index fell by 1.1% to 99.359, marking its steepest weekly decline since late January. In contrast, major currencies strengthened, with the euro rising 1.4% to $1.1569, the yen gaining 1.2%, and the British pound climbing over 1.5% to $1.3422.

The shift comes amid escalating tensions in the Middle East, which have pushed oil prices sharply higher. Brent crude oil has surged by about 50% since the escalation of the US-Israel conflict with Iran, disrupting global energy supply and fuelling inflation concerns.

While the European Central Bank and Bank of England have signalled possible rate hikes, and the Bank of Japan hinted at tightening, the Federal Reserve has maintained a cautious stance.

Fed Chair Jerome Powell said it is too early to assess the economic impact of the ongoing conflict.

Meanwhile, Nigeria’s currency remains under pressure, with the naira trading at around N1,362 to the dollar, reflecting broader volatility across emerging markets.

Analysts say the divergence in global monetary policy is reshaping investor sentiment, with capital shifting away from the dollar toward currencies backed by tightening central banks.