Dollar Holds Firm on Hawkish Fed View

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.

The US dollar index edged above 98.8 on Wednesday, extending gains from the previous session as markets positioned for the upcoming Federal Reserve policy meeting, which is expected to be Chair Jerome Powell’s final one before his term ends in May. The Fed is broadly anticipated to keep interest rates unchanged, with investors closely watching how policymakers assess the economic impact of the Middle East conflict. Several other major central banks, including those in the EU and the UK, are also set to announce policy decisions this week, while the BOJ delivered a hawkish hold on Tuesday. At the same time, stalled US-Iran negotiations and the continued closure of the Strait of Hormuz have intensified inflation concerns, supporting demand for the safe-haven dollar. President Donald Trump was reportedly dissatisfied with Tehran’s latest proposal, insisting that nuclear-related issues be addressed from the outset of any agreement.