DXY Eases as Trump Delays Iran Strikes

The dollar index slipped to around 99.6 on Monday after President Donald Trump said he had instructed the Department of Defense to postpone all planned strikes on Iranian energy infrastructure for five days, citing productive discussions with Iran over the past two days. While Tehran has not confirmed the talks, the comments suggest a possible opening toward de escalation. Oil prices dropped sharply following the announcement, with WTI falling more than 9% below $90 per barrel and Brent sliding over 13% to under $97. Despite the pullback, earlier gains in energy costs have continued to fuel inflation concerns, reducing expectations for near term Federal Reserve rate cuts and prompting some traders to price in a potential hike later this year. Major central banks including the Fed, ECB, BOE and BOJ have all held rates steady while signaling readiness to tighten policy further if inflation persists.

The dollar index climbed toward 100 on Monday, extending gains from the previous session as rising tensions in the Middle East boosted safe-haven demand for the currency. The US-Israel war with Iran entered its fourth week with no sign of easing, with President Donald Trump threatening strikes on Iranian power plants if the Strait of Hormuz is not reopened, while Tehran warned it would target key US and Israeli assets across the region if its energy facilities were hit. Elevated oil prices continued to fuel inflation fears and lowered the likelihood of a near-term Federal Reserve rate cut, with some traders now pricing in a potential rate hike toward year-end. Last week, the Fed kept its policy rate unchanged as expected, with Chair Jerome Powell noting it was too soon to assess the full economic impact of the Iran conflict. The ECB, BOE and BOJ also held rates steady but signaled readiness to tighten policy further if inflationary pressures persist.

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.