US dollar rises after Federal Reserve leaves interest rates unchanged, while gold prices slip

SINGAPORE – The US dollar strengthened after the Federal Reserve left interest rates unchanged on March 18, while gold prices fell as the firmer dollar outweighed safe-haven demand despite rising energy prices.

The Fed cited an “uncertain” outlook due to the war in Iran and kept rates at 3.5 per cent to 3.75 per cent, despite raising the inflation outlook to 2.7 per cent.

The greenback strengthened against major currencies, rising 0.25 per cent against the euro and 0.42 per cent against the Japanese yen. It also gained 0.2 per cent against the Swiss franc and 0.26 per cent against the Singapore dollar.

Mr Saktiandi Supaat, head of foreign exchange research at Maybank, said the US dollar strengthened as investors now expect US interest rates to stay higher for longer, and as bond yields rise and safe-haven demand grows, particularly through higher energy prices, amid geopolitical tensions.

“In essence, the dollar is benefiting from a war premium and rate exceptionalism – higher oil prices and geopolitical tensions are keeping inflation risks elevated, which in turn delays expectations of Fed rate cuts,” he said.

At the same time, the US economy has been relatively resilient compared with others, and this has reinforced demand for US dollar assets.

“If the current conflict becomes more protracted and energy prices continue to rise, this could sustain US dollar strength for a larger part of 2026, depending on how long these pressures persist,” added Mr Saktiandi.

OCBC foreign exchange strategists Sim Moh Siong and Christopher Wong said in a note on March 20 that the spike in energy prices is boosting exporters’ earnings while raising costs for importers, widening the gap between the two.

Currencies such as the US dollar, Australian dollar, Norwegian krone and Canadian dollar have benefited the most since the Iran conflict began as these currencies’ economies are energy exporters. In contrast, currencies in Asia and the euro zone, which rely on energy imports, have come under pressure.

If high energy prices continue and growth slows while inflation stays high, investors are likely to keep putting money into the US dollar as a safe place to park funds, especially at a time when stocks and bonds are getting more volatile, they noted.

UOB senior foreign exchange strategist Peter Chia noted that the US dollar had stabilised at around 1.26 against the Singdollar in January and February, but has since rebounded as heightened tensions in the Middle East lifted demand for the greenback.

“But downside risks for the Singapore dollar should be limited in the second quarter of 2026, supported by its status as a regional safe haven and market expectations that the Monetary Authority of Singapore (MAS) may tighten policy at its April meeting,” he said.

Mr Zavier Wong, market analyst at online broker eToro, said that the US dollar is more likely to soften against the Singapore dollar than to rise over the course of the year.

“There’s a reasonable argument that the greenback’s 2025 weakness reflected deliberate US policy, with the White House comfortable running a softer currency to chip away at the trade deficit and boost export competitiveness,” he said.

“Additionally, a new Fed chair replacing (Jerome) Powell in May, who is almost certainly someone more aligned with the current administration’s preference for looser policy, adds to that pressure further down the road.”

Mr Wong also noted that the strength of the Singapore dollar has been seen as a “primary inflation management tool”.

“With oil prices still elevated and import costs sticky, there’s little incentive for MAS to allow the weakening of the Singapore dollar – that asymmetry suggests that any further US dollar upside from here is likely to be capped and at most temporary,” he said.

More volatility in gold

Gold prices clawed back 4 per cent to around US$$4,700 an ounce on March 20 on dip buying, after sinking to a low of US$4,514 on March 19.

The precious metal, which hit a record high of US$5,589.38 on Jan 28, remains on track for a third consecutive weekly decline, weighed down by the stronger US dollar and fading hopes of near-term interest rate cuts.

Maybank’s Mr Saktiandi said that in the short term, a stronger US dollar and higher investment returns can weigh on gold prices.

But over the medium term, geopolitical risks, inflation concerns and demand for safe-haven assets should continue to support gold, keeping its longer-term appeal intact.

UOB’s Mr Chia noted that the key near-term price support for gold is likely to be around US$4,300 an ounce, the level from which prices began their strong rally in early January.

“Over the longer term, we remain confident of strong structural demand for gold from both retail investors and central banks,” he said, adding that the Middle East crisis has amplified geopolitical risks and reinforced gold’s role as a safe-haven asset.

“UOB maintains its forecast for gold to reach US$6,500 an ounce by the first quarter of 2027,” said Mr Chia.