DXY Rises 0.5% on Middle East Conflict

The DXY rose 0.5% to 98 on Monday, the highest in 5 weeks, as investors moved to safe-haven assets after US and Israel strike on Iran over the weekend resulted in the death of Iran’s Supreme Leader, Ayatollah Ali Khamenei. The conflict has significantly disrupted maritime traffic in the oil-rich Gulf. Iran also launched attacks on US assets across neighboring states, including the United Arab Emirates, Bahrain, Kuwait, Qatar, Saudi Arabia, Jordan, Iraq and Syria.

The dollar index remained above 97.7 on Friday and was largely unchanged for the week, supported by stronger-than-expected inflation that reinforced expectations the Federal Reserve will hold interest rates steady. January’s PPI rose 0.5% month-on-month, up from 0.4% in December and exceeding forecasts of 0.3%, signaling persistent price pressures. Jobless claims data showed both initial and continuing claims below expectations, pointing to a stable US labor market and solid worker retention. Money markets are projecting at least two rate cuts this year, with the first one fully priced in July. Investors also watched potential US tariff increases from 10% to 15% for some countries and ongoing US-Iran nuclear talks set to continue next week. The dollar is on track to finish the month 0.9% higher, ending a three-month losing streak.

The dollar Index held arounde 97.8 on Friday, trading sideways throughout the week as investors awaited upcoming inflation data that could shape Federal Reserve policy expectations. January’s PPI report is forecast to show wholesale inflation slowing to 0.3% month-on-month, down from 0.5% in December. Data on Thursday revealed that both initial and continuing jobless claims came in below forecasts, indicating a stable US labor market and ongoing employer retention of workers. The Fed is expected to keep rates on hold at least until June, as policymakers weigh elevated inflation against labor market risks. Investors also monitored uncertainties around US tariffs, following indications from the Trump administration that tariffs for some countries could rise from 10% to 15%, while the US and Iran agreed to continue nuclear negotiations next week. The dollar looks set to end the month higher, snapping a three-month losing streak.