Dollar Pressured by Dovish Fed Outlook

The dollar index rose toward 100 on Thursday, snapping a two-day decline, after President Donald Trump offered no clarity on when the Iran war might end, reinforcing uncertainty in global markets. In a rare prime-time speech, Trump said Washington’s “core strategic objectives” in Iran were close to being achieved, but he also threatened further severe strikes on the country over the next two to three weeks, including potential attacks on civilian infrastructure if no agreement is reached. On Wednesday, Trump said that Iran had requested a ceasefire, a claim Tehran quickly denied. The currency has benefited from safe-haven demand since the conflict began, gaining 2.3% last month. The war has also triggered a sharp rise in oil prices, raising concerns over a spike in inflation. This has led investors to scale back expectations for Federal Reserve rate cuts this year, further supporting the dollar.

The dollar index dropped to 99.5 on Wednesday, retreating further from the ten-month high of 100.5 from Monday as signs that the US aims to restore vessel flows in the Middle East tamed the urgency for safety in the greenback. President Trump stated that Iran asked for a ceasefire under their conditions, but the US will escalate the war should Tehran continue to attack vessels crossing the Strait of Hormuz. Major currencies wavered following the statement that mixed de-escalation hopes with escalation threats. Last month, the dollar index gained 2.3% as investors sought the safe-haven asset amid fears of a prolonged war. The currency was also supported by diminishing expectations of Federal Reserve rate cuts this year, as the conflict drove oil prices sharply higher, stoking inflation concerns.

The dollar index fell to 99.5 on the first trading day of April, hitting its lowest level in a week amid hopes for a swift resolution to the Middle East conflict. President Donald Trump said the US would wrap up its military campaign in Iran in two or three weeks with or without a deal. Still, traders remain cautious as more US troops are being deployed to the region and the Strait of Hormuz remains largely closed. Market participants are now awaiting Trump’s nationwide address on the Iran situation later in the day. Last month, the dollar gained 2.3% as investors sought the safe-haven asset amid fears of a prolonged war. The currency was also supported by diminishing expectations of Federal Reserve rate cuts this year, as the conflict drove oil prices sharply higher, stoking inflation concerns. Meanwhile, Fed Chair Jerome Powell appeared to reassure markets, saying that long-term US inflation expectations remain grounded.