DXY Falls to 8-Week Low

The dollar index strengthened above 98.5 on Wednesday, marking a third consecutive session of gains as investors increased bets that the Federal Reserve will keep interest rates higher for longer amid rising inflation pressures linked to the war in Iran. Market sentiment turned more hawkish after data showed US wholesale inflation accelerated in April to its fastest pace since 2022, driven in part by higher freight and transportation costs stemming from Middle East disruptions. The producer price index climbed 6% year on year, exceeding all forecasts, while the monthly increase was also the strongest since 2022. Core producer prices, which exclude food and energy, rose 5.2% from a year earlier, the largest increase in more than three years. Even if the current ceasefire holds and the Strait of Hormuz reopens soon, economists expect elevated energy and shipping costs to continue weighing on inflation as supply chains and oil production gradually normalize.

The dollar index strengthened above 98 on Wednesday, rising for the third straight session, supported by stronger-than-expected US inflation data that reduced expectations for Federal Reserve interest rate cuts. US consumer inflation rose 3.8% in April, above forecasts of 3.7% and the highest since May 2023, as surging energy prices tied to the Middle East conflict added to price pressures. Markets have largely priced out any Fed rate cuts this year, while expectations for a quarter-point hike in December have climbed to 35%. Investors are now focused on the latest producer inflation report for further signals on how the Iran war is affecting the US economy. Meanwhile, oil prices remained elevated as diplomatic efforts to resolve the US-Iran conflict stalled, keeping inflation risks high. President Donald Trump is also due to meet Chinese President Xi Jinping this week, though he indicated trade talks will take precedence over the Iran situation.

The dollar index climbed above 98 after a key US inflation report highlighted the economic impact of higher energy costs and supply disruptions linked to the war in Iran. Consumer prices rose 3.8% year-on-year in April, the fastest pace since 2023, while monthly inflation accelerated to 0.6%. Core CPI, which excludes food and energy, increased 0.4% from March and 2.8% annually, exceeding forecasts. Part of the rise was linked to distortions in rent calculations following the 2025 government shutdown. Investors also monitored growing tensions in the Middle East, with President Donald Trump reportedly frustrated by the lack of progress in negotiations with Iran. The Strait of Hormuz remains largely closed, severely disrupting global energy shipments and pushing oil prices higher. The supply shock has begun feeding into broader measures of supply-chain stress, reviving concerns about persistent inflationary pressures and keeping central banks cautious on interest-rate policy.