Dollar Edges Up on Friday but Set for Weekly Drop

The dollar index rose to 99.8 on Friday, after falling 0.8% in the previous session, as the war with Iran continued and prospects for a swift resolution remained slim. Oil prices were volatile but held near 2022 highs, heightening concerns about their impact on inflation at a time when central banks are already adopting a more cautious, hawkish stance. The Federal Reserve left the federal funds rate unchanged on Wednesday. Updated projections still point to one rate cut this year, but policymakers highlighted uncertainty surrounding the economic impact of the conflict and flagged elevated upside risks to inflation. The greenback strengthened broadly, with the most notable gains against the Japanese yen. Despite Friday’s uptick, the dollar is down nearly 1% for the week.

The dollar index hovered near 99 on Friday after losing more than 1% in the previous session, as hawkish signals from other major central banks strengthened their currencies at the dollar’s expense. The European Central Bank, Bank of Japan, and Bank of England all kept policy rates unchanged on Thursday but indicated a bias toward tighter monetary policy amid inflation pressures from rising oil prices. The BOJ is expected to resume policy normalization soon, while markets now anticipate rate hikes from both the ECB and BOE this year. Elsewhere, the Reserve Bank of Australia raised its cash rate for the second consecutive meeting on Tuesday, and the Reserve Bank of New Zealand may tighten policy sooner than previously expected. The Federal Reserve also held rates steady on Wednesday, with Chair Jerome Powell stressing that officials need to see progress in reducing inflation before resuming rate cuts. The dollar index is on track to lose about 1.2% this week.

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.