Dollar Firms Up on Hawkish Fed Outlook

The dollar index held above 100 on Thursday after rebounding sharply in the previous session, supported by an increasingly hawkish Federal Reserve outlook. The central bank left the fed funds rate unchanged, as expected, noting the uncertain economic impact of the Iran war while flagging elevated upside risks to inflation. The Fed indicated it will not cut rates until inflation shows signs of easing, though it still projects one rate reduction this year and another in 2027, consistent with its December outlook. Data on Wednesday showed US producer prices rose more than expected in February. Investors now await the latest weekly jobless claims for fresh insights on the labor market. Meanwhile, oil prices climbed further following attacks on energy infrastructure across the Middle East as the Iran conflict continues. President Donald Trump temporarily waived the Jones Act to reduce the cost of transporting oil, gas, and other commodities within the US.

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.