The dollar erased its advance on Monday after the Federal Reserve’s Michelle Bowman said she could support reducing interest rates as soon as July.

The remarks by Vice Chair for Supervision Bowman echoed comments by Fed Governor Christopher Waller on Friday, and they raised the prospect that lower borrowing costs could dim the dollar’s relative allure. As a result, the greenback gave up an earlier advance that was fueled by geopolitical tension after the US bombed nuclear sites in Iran over the weekend.

The Bloomberg Dollar Spot index was little changed in mid-morning New York trading, after rising as much as 0.6% earlier as traders sought the dollar as a haven. Investors also worried that the prospect of a jump in oil prices following the US airstrikes in Iran could stoke inflation and prevent the Fed from cutting rates. 

“The attack is already looking to fade into the market backdrop, and traders have refocused their attention on Fed speakers like Bowman and are looking ahead to several key data releases to wrap up the quarter, all of which are pointing to a weaker dollar,” said Helen Given, a foreign-exchange trader at Monex Inc.

Investors are watching for signs that Iran could respond to strikes by Israel and the US by seeking to disrupt shipping in the Strait of Hormuz, a major route for oil and natural gas. While the reaction in global stock markets has been muted, Brent crude rose more than 5% at one point on Monday before erasing the climb.

“Prolonged conflict and inflationary pressures could complicate the US Federal Reserve’s policy stance even as the dollar initially strengthens after the attack,” said Gregor Hirt, CIO of multi-asset at AllianzGI.

With assistance from Vassilis Karamanis and Alice Gledhill.

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