Dollar Down to Over 4-Month Lows

The dollar index slipped to 98.4 on Thursday, as oil prices pulled back from a four-year high, while fresh data pointed to resilience in the US economy. Figures from the Bureau of Economic Analysis showed GDP grew at an annualized 2% in the first quarter, rebounding from a late 2025 slowdown linked to the government shutdown. Consumer spending rose 1.6%, supported by solid demand for services, while separate data showed jobless claims falling to multi-decade lows. The releases came shortly after the Federal Reserve held interest rates steady but highlighted growing divisions among policymakers amid uncertainty tied to the Middle East conflict. Meanwhile, the yen strengthened as traders speculated Japanese authorities may be intervening, following a strong warning against excessive currency weakness.

The dollar index hovered near 99 on Thursday, sustaining recent gains after the Federal Reserve kept its policy rate unchanged as expected but adopted a more hawkish tone amid growing inflation concerns. Four policymakers also dissented from the decision, arguing the Fed should no longer signal a bias toward easing, underscoring rising internal divisions over the policy outlook as uncertainty increases due to the Iran conflict. Markets have since fully priced out Fed rate cuts for this year, while beginning to assign odds to a possible hike in 2027. Attention now turns to upcoming monetary policy decisions from the European Central Bank and the Bank of England later in the day. The dollar also drew support from elevated geopolitical tensions in the Middle East, after President Donald Trump said the US would maintain its naval blockade on Iran until a nuclear agreement is reached, while Tehran accused Washington of attempting to force Iran into submission through economic pressure.

The dollar index rose to 99.9 on Wednesday, the highest in three weeks, as Federal Reserve policymakers struck a hawkish tone in their rate hold and persistent geopolitical tensions supported the safety of the greenback. The Fed held its policy rates unchanged as expected by markets, but three FOMC members dissented against the easing bias in the central bank's signal. This increased the thresholds for regional Fed presidents, known for being more hawkish, to vote for an eventual cut. On top of that, Chair Powell announced he will stay in the FOMC for the meantime, removing the dovish dissenter Miran. President Trump signaled that an agreement to lift the blockade of tankers in the Persian Gulf will only be lifted with an Iranian nuclear agreement, adding more impasses to the conflict. The Bank of Canada signaled it does not see domestic inflation de-anchoring in its rate hold, although the BoJ delivered hawkish remarks in its meeting. Both the ECB and BoE decide their rates tomorrow.