Dollar Gains as Traders Monitor US-Iran War

The dollar index climbed above 98 after a key US inflation report highlighted the economic impact of higher energy costs and supply disruptions linked to the war in Iran. Consumer prices rose 3.8% year-on-year in April, the fastest pace since 2023, while monthly inflation accelerated to 0.6%. Core CPI, which excludes food and energy, increased 0.4% from March and 2.8% annually, exceeding forecasts. Part of the rise was linked to distortions in rent calculations following the 2025 government shutdown. Investors also monitored growing tensions in the Middle East, with President Donald Trump reportedly frustrated by the lack of progress in negotiations with Iran. The Strait of Hormuz remains largely closed, severely disrupting global energy shipments and pushing oil prices higher. The supply shock has begun feeding into broader measures of supply-chain stress, reviving concerns about persistent inflationary pressures and keeping central banks cautious on interest-rate policy.

The dollar index moved back above 98 on Tuesday as President Trump cast doubt on the sustainability of US-Iran ceasefire after he rejected Tehran’s latest peace offer, boosting safe-haven demand for the greenback. Reports also suggested that Trump is expected to meet with his national security team to consider a potential resumption of military operations, while revisiting plans to escort commercial vessels through the Strait of Hormuz. The ongoing conflict has kept oil prices elevated, reinforcing inflation risks and strengthening expectations that interest rates may need to remain higher for longer to contain price pressures. Meanwhile, investors were awaiting April’s consumer inflation report for clearer signals on how the Iran war is affecting the economy and shaping the Federal Reserve’s policy outlook. Trump is also set to meet with Chinese President Xi Jinping later this week, with trade relations and artificial intelligence expected to dominate the agenda.

The dollar index was little changed at 97.9 on Monday, as traders digested another setback in Middle East peace talks while awaiting further developments. US President Trump rejected Iran’s counterproposal aimed at ending the 10-week conflict, calling it “totally unacceptable,” while Tehran vowed to “never bow.” As a result, oil prices moved higher, fueling concerns over the economic impact of a prolonged oil shock. Meanwhile, US inflation data due tomorrow will be closely watched for further clues on the Fed’s next policy steps. The Fed is widely expected to keep the federal funds rate unchanged this year, while investors currently see a 31% chance of a rate hike in March. Investors were also looking ahead to a summit between US President Trump and Chinese President Xi Jinping expected later this week. According to US officials, the two leaders are set to discuss Iran, Taiwan, artificial intelligence, nuclear weapons, and critical minerals.