$USDT HSBC recently pointed out in its latest reports on forex markets that the US dollar is at a crossroads, driven by developments in the Middle East, changes in US trade policy, along with the upcoming Federal Reserve meeting in June under the leadership of the new Fed Chair, Kevin Warsh.

The bank pointed out that it expects broad weakness for the US dollar in the long term, but cautioned that any renewed signals to hike interest rates could support the American currency.

The bank said that developments in the Middle East continue to represent a key focal point for market attention, noting that periods of escalating tensions have generally been associated with rising oil prices and a strong US dollar, while any easing or de-escalation usually led to counterproductive outcomes.

It added that there are currently no clear indicators of a swift resolution, while ongoing supply disruptions in several key commodities are negatively impacting market sentiment.

The report also added that US trade policy has once again returned to the spotlight for investors after the Office of the United States Trade Representative (USTR) announced on June 2 a proposal to impose tariffs ranging from 10% to 12.5% on imports from 60 economies under investigation for alleged use of forced labor concerning import controls.

Regarding monetary policy, HSBC clarified that markets are increasingly focused on the Federal Open Market Committee meeting on June 16 and 17, and on how the new Federal Reserve Chair, Kevin Warsh, will present his vision for monetary policy moving forward.

It pointed out that markets have become more sensitive to the risks of the Fed adopting a more hawkish stance, especially given the series of US economic data that have come in stronger than expected recently.

The bank noted that the last similar instance of a rapid repricing of US interest rate expectations toward a more hawkish stance, which occurred in late 2024, was accompanied by broad strength of the US dollar.

HSBC confirmed that its baseline scenario still excludes any indication from the Federal Reserve of a willingness to raise interest rates, while maintaining its expectations for long-term weakness of the US dollar.

However, it indicated that any signal of a return to interest rate hikes being a possibility would justify adopting a more positive outlook on the US dollar, adding that markets are nearing a critical phase in this regard.