Dollar Rises Further as War With Iran Escalates

The dollar index pared early gains to trade slightly lower, slipping below 99 on Thursday to its weakest level in more than two weeks. Investors continued to monitor developments in the Middle East, where a recently announced ceasefire appeared increasingly fragile ahead of peace talks scheduled for Friday. The agreement showed signs of strain as Israel maintained its conflict with Hezbollah in Lebanon, while Tehran accused the US of violating the deal. The Strait of Hormuz also remained closed. On the data front, February PCE inflation rose in line with expectations, while Q4 GDP growth was revised lower and initial jobless claims edged up. Attention turns to the March CPI report due tomorrow for insights into how the Middle East conflict has impacted prices so far. Minutes from the FOMC’s March meeting showed policymakers were concerned that the war could lead to sustained inflation requiring further rate hikes, although they still expected one rate cut this year.

The dollar index climbed above 99 on Thursday, trimming losses from the previous session as a fragile ceasefire between the US and Iran kept investor sentiment cautious. Iranian media reported that oil tanker transit through the Strait of Hormuz remained halted following fresh Israeli strikes on Lebanon, while a senior Iranian official said three provisions of the ceasefire proposal had already been breached. On Wednesday, the dollar had dropped sharply after the US and Iran agreed to a two-week ceasefire, causing a sudden drop in oil prices and easing inflation concerns. Meanwhile, minutes from the Federal Reserve’s latest policy meeting indicated that a growing number of members viewed a rate hike as possibly necessary to control inflation, though many still hoped the next move could be a cut. Investors now turn to February personal spending and the PCE deflator on Thursday, followed by the CPI report on Friday, for further guidance.

The dollar Index remained below 99 on Wednesday, hovering near its lowest level in about a month, as news of a two-week ceasefire between the United States and Iran, which triggered a sharp drop in oil prices, eased investor concerns about an inflationary spiral and boosted expectations that the Fed could cut interest rates this year. At the start of the week, markets had priced in no chance of a rate cut, having previously anticipated more than two reductions before the conflict escalated. Meanwhile, minutes from the FOMC’s March meeting showed policymakers were concerned that Middle East hostilities could lead to sustained inflation requiring further rate hikes, although they still expected one rate cut this year. Investors now await the release of US March CPI data on Friday for additional clues on price pressures linked to the ongoing conflict.