The Federal Reserve may take unexpected action as early as July. The dollar ignored hawkish comments from the European Central Bank (ECB) and continued to strengthen against major global currencies, including the euro. The ECB kept its deposit rate unchanged at 2.25%, while leaving the door open for further rate hikes. ECB President Christine Lagarde noted that several members of the Governing Council had considered immediate action, but ultimately unanimously decided to wait and see. This decision reflects the ECB's tendency to act cautiously amid current geopolitical uncertainty, avoiding premature tightening that could damage the fragile economic recovery. The European Central Bank (ECB) was the first major central bank to respond to the Middle East conflict, tightening monetary policy in June and still having room to maneuver. Its deposit rate is 150 basis points lower than the Federal Reserve's, thus leaving room for an upward adjustment. The futures market currently projects two rounds of monetary tightening in 2026, the first possibly in September or October. This pricing reflects market concerns about potential downside risks to the European economy and also highlights the widening policy divergence with the Federal Reserve. However, the fate of the euro/dollar is not decided in Frankfurt, but in Washington. In the Fed's latest interest rate projections, half of the officials expect a rate hike, while the rest believe rates will remain unchanged. Meanwhile, oil prices have broken through the key $100 per barrel level, significantly increasing the likelihood of a Fed rate hike as early as its July meeting. The CME derivatives market currently prices this probability at 34%. High oil prices, by pushing up overall inflation expectations, directly amplify the pressure on the Fed to maintain or tighten policy, especially given the context of energy costs being passed on to consumer prices and business costs. Meanwhile, the White House announced new tariffs of 10-12.5% on dozens of countries, covering more than 99% of total U.S. imports. These tariffs will replace the temporary 10% import tariffs set to expire on July 24. Since the new tariff rates are not significantly different from the previous ones, their impact on the market is limited. Nevertheless, Washington's intention to continue the trade war—even in the face of a Supreme Court ruling—should still cause concern among investors. This policy continuation could exacerbate global supply chain tensions and indirectly support the dollar's status as a safe-haven asset. The yen is experiencing its biggest weekly drop in nearly two months, with investors ignoring verbal intervention from the Japanese government and rumors that the Bank of Japan (BoJ) will tighten monetary policy faster than the market expects. Economic analysis shows that the Bank of Japan now has another reason to act in June—a key inflation indicator rose for the first time in three months, reaching 1.6%. However, investors do not expect an immediate interest rate hike at the Bank of Japan's policy board meeting in July. As a result, USD/JPY has steadily climbed. This dynamic further reinforces the overall strength of the dollar, as global capital continues to flow into dollar assets in an environment seeking higher yields and more robust policy expectations. Overall, soaring oil prices coupled with a hawkish U.S. trade policy are providing strong support for the dollar, while the relatively dovish paths of the European Central Bank and the Bank of Japan are further widening this gap. Market participants need to closely watch the upcoming Federal Reserve meeting to determine whether oil price factors will truly prompt a policy shift.