DXY Rises Toward 4-Week High

The dollar index slipped to around 98.5 on Monday after briefly climbing as high as 99.3 earlier in the session, as markets reacted to reports that Iran had submitted a new proposal to the US aimed at reopening the Strait of Hormuz and easing tensions. The proposal, reportedly delivered via Pakistani mediators, called for an extension of the ceasefire to enable progress toward a lasting settlement, while postponing nuclear negotiations until the US blockade of the strait is lifted. Earlier in the session, the dollar jumped after President Donald Trump cancelled plans to send senior envoys for a second round of talks with Iran, while Tehran reiterated it would not engage in negotiations under threats or blockade conditions. Meanwhile, the Federal Reserve is widely expected to keep its policy rate unchanged on Wednesday, a meeting that could mark Jerome Powell’s final session as chair before Kevin Warsh is expected to assume the role in May.

The dollar index climbed as high as 99.3 on Monday before easing to around 98.5, as efforts to resume peace negotiations between the US and Iran failed to push through, keeping markets cautious about geopolitical tensions. President Trump cancelled plans to send senior envoys for a second round of talks with Iran, while Tehran reiterated it would not negotiate under threats or blockade conditions. Oil prices rallied again as the Middle East conflict entered its ninth week and the Strait of Hormuz remained effectively shut, fueling inflation concerns and increasing expectations that central banks may keep interest rates higher for longer or even tighten further. The Federal Reserve is widely expected to hold its policy rate steady on Wednesday, a meeting that could mark Jerome Powell’s final session as chair before Kevin Warsh is anticipated to take over in May. Investors are also positioning ahead of key policy decisions from the ECB, Bank of England, and Bank of Japan later this week.

The dollar index fell below 98.6 on Friday, paring an earlier rise, as traders continued to focus on developments in the Middle East. Al Jazeera reported that government sources indicated a “high likelihood of a breakthrough” in US–Iran talks in Islamabad, with a delegation led by Iran’s Foreign Minister expected to arrive in the Pakistani capital tonight. In addition, US President Trump announced a three-week extension to the ceasefire in Lebanon, which was due to expire on Sunday. Still, the greenback is up about 0.7% on the week, its first weekly gain in three weeks, as the stalemate in US–Iran talks and the near closure of the Strait of Hormuz continue to support higher oil prices and add to inflationary pressures, prompting traders to reassess the interest rate outlook. The Fed is widely expected to keep the federal funds rate unchanged next week, with no further rate changes anticipated for the remainder of the year.