Currency markets brace for Fed, ECB, and BoJ decisions amid geopolitical risks
Foreign exchange markets are facing a volatile week as geopolitical tensions and central bank decisions take centre stage. The U.S. Federal Reserve will reveal its latest policy move on Wednesday, while the Bank of Japan and the European Central Bank follow with their announcements on Thursday. Meanwhile, the Australian dollar climbed after a surprise rate hike by the Reserve Bank of Australia (RBA).
The euro started Tuesday's session at $1.1515 but weakened to $1.1466 in early trading. By the afternoon, it had recovered its losses. Over the past year, the currency pair has steadily declined, dropping from around 1.18 USD in early 2025 to roughly 1.16 USD by March 2026, with further dips to between 1.10 and 1.14 amid market swings.
Several factors have driven this trend. Escalating tensions in the Middle East, including the Iran conflict, have added pressure. A stronger U.S. dollar, backed by the Federal Reserve's firm interest rate stance and supportive Trump-era policies, has also played a role. In contrast, the eurozone has struggled with weak growth, falling inflation, and economic uncertainty. Elsewhere, the Reserve Bank of Australia lifted its benchmark rate by 25 basis points to 4.10%. The move boosted the Australian dollar against most major currencies. Investors now await the Fed's decision on Wednesday, followed by the Bank of Japan and the European Central Bank's updates on Thursday.
The euro's recent fluctuations reflect broader market unease, influenced by geopolitical risks and monetary policy shifts. With key rate decisions due this week, traders are watching closely for further movements in currency markets. The Australian dollar's gain, meanwhile, highlights how central bank actions can quickly reshape exchange rates.
