Dollar Index Hits 11-week Low

The dollar index moved back to 100 after reaching 100.2 early in the session, as traders assess the latest developments in the Middle East. A report that Iran is drafting a protocol with Oman to monitor traffic through the Strait of Hormuz offered some relief. However, volatility is expected to persist amid escalating rhetoric from President Trump and as crude prices remain near 2022 highs. Oil prices surged following Trump’s pledge to take more aggressive action against Iran. High energy prices are fuelling worries about an inflation spiral which could prompt the Fed to adopt a more hawkish stance. Earlier this week, Fed Chair Powell said officials may need to respond to the economic effects of the conflict, though not at this stage, adding that current policy is well positioned to allow a wait-and-see approach. Markets currently expect the Fed to keep the federal funds rate unchanged this year.

The dollar index was up to 100.5 on Thursday, approaching again ten-month highs reached last week, as concerns about a renewed inflation spiral resurfaced. Oil prices surged following US President Trump’s pledge to take more aggressive action against Iran, while offering no concrete plans to reopen the Strait of Hormuz. Crude prices remain near 2022 highs, fuelling worries about their inflationary impact, which could prompt the Fed to adopt a more hawkish stance and delay any rate cuts this year. Earlier this week, Fed Chair Powell said officials may need to respond to the economic effects of the conflict, though not at this stage, adding that current policy is well positioned to allow a wait-and-see approach. Markets currently expect the Fed to keep the federal funds rate unchanged this year. The greenback was mostly higher against the British pound, the Australian dollar and the euro.

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, injecting further uncertainty into 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.