DXY Falls as US Consumer Sentiment Sanks

The dollar index hovered around 99.5 on Wednesday after falling for two consecutive sessions, as investors awaited the latest Federal Reserve policy decision. The central bank is widely expected to keep interest rates unchanged, with traders watching for guidance from Fed Chair Jerome Powell on how oil market volatility could shape the policy outlook. Rising oil prices have stoked inflation concerns, while mixed labor market signals offered little clarity on future rates. Markets do not anticipate Fed easing until at least September or October, with only a single rate cut expected this year. Meanwhile, Iran intensified attacks on energy infrastructure in the Middle East, while US allies rejected President Donald Trump’s call to secure commercial shipping through the Strait of Hormuz. The dollar has fallen against all major currencies this week, sliding most sharply versus the aussie after the Reserve Bank of Australia delivered consecutive rate hikes.

The dollar index steadied just below 100 on Tuesday after coming under pressure in the previous session as investors continued to assess the impact of the Middle East conflict and volatile oil prices on the economy and inflation. The greenback retreated on Monday as lower oil prices helped ease inflation concerns, following the safe passage of several tankers through the Strait of Hormuz. Treasury Secretary Scott Bessent also said the US is allowing Iran to continue shipping its crude through Hormuz, while President Donald Trump has asked other countries to support efforts to safeguard commercial activity in the waterway. Meanwhile, the Federal Reserve is widely expected to hold interest rates steady on Wednesday as policymakers navigate uncertainties surrounding the Iran war. Investors will closely watch the central bank’s assessment of the recent surge in energy prices and its implications for inflation and borrowing costs.

The dollar index was around 100 on Monday, easing slightly from ten-month highs reached last week, as traders continue to assess the conflict with Iran and its impact on inflation and the fiscal outlook. Oil prices eased after Treasury Secretary Bessent said the US is allowing Iranian oil tankers to transit the Strait of Hormuz, while President Trump is urging other nations to help ensure the waterway remains open. Still, uncertainty persists over when the conflict could end. The US says it is in talks with Iran, although Tehran has denied claims that it is seeking a truce. Meanwhile, the Fed will announce its monetary policy decision later this week. While no change to the federal funds rate is expected, investors will closely watch policymakers’ assessment of the recent spike in energy prices and its impact on inflation and borrowing costs. Markets are currently pricing in only one 25bps rate cut, likely not before December. The greenback was mostly lower against the Aussie.