DXY Pares Gains after Jobs Report

The dollar index hovered around 98.6 on Thursday, holding near a two-week high, as traders remained focused on the escalating standoff between the US and Iran. Uncertainty around peace negotiations persists, while rhetoric remains heated. In the latest developments, US President Trump ordered the US Navy to target any vessels laying mines in the Strait of Hormuz and pledged to intensify efforts to secure the waterway. The US continues to enforce a blockade on ships to and from Iranian ports, while Tehran has effectively curtailed international maritime traffic. As a result, oil prices remain well above pre-conflict levels, and activity in the Strait is largely stalled. Meanwhile, the Fed is widely expected to keep the fed funds rate unchanged next week and for most of the year. Markets are currently pricing in a 26% chance of a 25bps rate cut in December, down from earlier expectations of two cuts this year prior to the escalation in conflict.

The dollar index held around 98.5 on Thursday, hovering at over one-week highs amid a lack of progress in peace efforts between the US and Iran, supporting safe-haven demand for the greenback. The Strait of Hormuz also remains effectively closed, as Tehran maintains control of the strategic waterway and has seized two vessels, while the US blockade of Iranian ports continues, contributing to elevated energy prices and heightened inflation risks. Meanwhile, President Donald Trump said the current truce would remain in place indefinitely as Washington awaits a new peace proposal from Iran. Persistent inflation concerns have reinforced expectations that the Federal Reserve will keep interest rates unchanged this year, while Fed nominee Kevin Warsh pledged to preserve the central bank’s independence from the White House. Investors now turn their attention to weekly jobless claims and upcoming PMI data for further signals on the US economic outlook.

The dollar index was at 98.3 on Wednesday, trading largely sideways near pre-war levels, as uncertainty in the Middle East persists despite some near-term relief from a ceasefire extension. US President Trump announced he would extend the ceasefire with Iran indefinitely, just ahead of its expiration, to allow time for peace negotiations. He also indicated that no new attacks were planned, although the blockade of the Strait of Hormuz would remain in place. However, uncertainty persists over the timing of any formal negotiations and news showed Iran fired ships in the Strait of Hormuz. Meanwhile, Federal Reserve nominee Kevin Warsh pledged to maintain independence from the White House while advancing broad reforms, a stance viewed as more hawkish than markets had expected. The Fed will decide on monetary policy next week and no changes in the fed funds rate are expected.