Dollar Index Strengthens, Fed and Oil Eyed

The dollar index topped 100 on Wednesday as traders assessed the Federal Reserve’s latest monetary policy decision. The central bank left the fed funds rate unchanged, as expected, and noted that the economic impact of the war with Iran remains uncertain, while also flagging elevated upside risks to inflation. However, it still projects one rate cut this year and another in 2027, in line with its December outlook. The timing of these cuts, however, remains unclear, with investors currently expecting a move in December or January. Meanwhile, traders continue to monitor developments in the war with Iran, as strikes persist and oil prices remain volatile, swinging between gains and losses. In an effort to stabilize oil markets, President Trump issued a waiver of the Jones Act, stating it “will allow vital resources like oil, natural gas, fertilizer, and coal to flow freely to US ports for sixty days”.

The dollar index strengthened to around 99.9 on Wednesday after falling to 99.5 early in the session, as concerns over persistent inflationary pressures intensified. Oil prices climbed again after Iran reported that some of its energy facilities had come under attack, adding to inflation worries. Meanwhile, producer prices rose more than expected in February, with headline PPI increasing 0.7% month-on-month and core PPI rising 0.5%, both above forecasts of 0.3%. The data reinforced signs that inflation remains firm even beyond energy-related pressures. Investors are now turning their attention to the Federal Reserve’s policy decision later in the day. While no change in the fed funds rate is anticipated, markets will closely scrutinize updated economic projections and comments from Chair Powell for insight into how tensions with Iran could influence the policy outlook. The greenback advanced broadly, with the strongest gains seen against the Australian dollar.

The dollar index hovered around 99.5 on Wednesday after falling for two consecutive sessions, as investors awaited the latest Federal Reserve policy decision. The central bank is widely expected to keep interest rates unchanged, with traders watching for guidance from Fed Chair Jerome Powell on how oil market volatility could shape the policy outlook. Rising oil prices have stoked inflation concerns, while mixed labor market signals offered little clarity on future rates. Markets do not anticipate Fed easing until at least September or October, with only a single rate cut expected this year. Meanwhile, Iran intensified attacks on energy infrastructure in the Middle East, while US allies rejected President Donald Trump’s call to secure commercial shipping through the Strait of Hormuz. The dollar has fallen against all major currencies this week, sliding most sharply versus the aussie after the Reserve Bank of Australia delivered consecutive rate hikes.