Dollar Back to Above 99

The dollar index resumed gains to 99.1 on Wednesday, hovering near the high levels reached since the war with Iran began earlier this month. Traders continue to monitor the war and its impact on oil markets. Oil saw brief relief amid reports that countries are preparing to release reserves, but prices resumed their rise, keeping concerns about an energy-driven inflation spike alive. On the data front, February inflation came in line with forecasts, showing stable but above-target CPI. However, the full effect of the energy surge from the conflict is yet to be reflected. The Fed is widely expected to keep the federal funds rate steady next week, with traders anticipating only one 25bps cut, possibly in September. The greenback was mostly higher against the euro and the yen but was losing against the Australian dollar as traders ramp up bets the RBA will raise interest rates next week.

The dollar index slipped below 99 on Wednesday, reversing gains from the previous session as traders contended with mounting uncertainty over the Middle East conflict. The Trump administration sent mixed signals on the Iran war, with President Donald Trump saying the conflict could end soon amid mounting market pressure, while senior officials indicated that military operations were intensifying and diplomatic talks remained unlikely. Iran’s Revolutionary Guards dismissed Trump’s claims, warning that the blockade would continue until US and Israeli attacks cease. Meanwhile, oil prices declined further after reports that the International Energy Agency proposed the largest release of oil reserves in its history to help stabilize markets. Investors now turn to a key US inflation reading that could provide insight into recent price trends, though it is not yet expected to capture the impact of the Iran war.

The dollar index remained below 99 on Tuesday after a sharp intraday drop in the previous session, as hopes for a swift end to the Iran war reduced safe-haven demand for the currency. President Donald Trump said the US military operation in Iran is nearing its conclusion and running well ahead of the initial four- to five-week estimated timeframe. He also indicated plans to waive oil-related sanctions and have the US Navy escort tankers through the Strait of Hormuz to help keep oil prices in check. The dollar had previously rallied on safe-haven buying as the Middle East conflict and surging oil prices raised fears of prolonged economic disruption and resurgent inflation. Looking ahead, investors await the February CPI report on Wednesday and January’s PCE price index on Friday for further clues on inflation trends, though neither is expected to fully reflect the impact of the Iran war.