Dollar Index Hits 44-week High

The dollar index traded around 101.2 on Tuesday, remaining near two-month highs amid expectations that the Federal Reserve will tighten policy further to combat energy-driven inflation from persistent US-Iran uncertainty. Oil prices extended their gains after Iranian officials reportedly questioned the prospects of reaching an agreement before the US midterm elections in November, following President Donald Trump’s rejection of Tehran’s latest proposal. Treasury yields also remained at multi-decade highs, with both the 10- and 30-year yields climbing above 5%. Markets are currently pricing in roughly a 70% probability of a Fed rate increase in October, following the central bank’s first rate hike in three years earlier this month. Meanwhile, Fed Governor Lisa Cook said potential productivity gains from artificial intelligence may not be sufficient to offset near-term price pressures, warning that this could contribute to broader inflation across the economy.

The dollar index climbed to above 101.2 on Monday, remaining near two-month highs as rising oil prices strengthened expectations for further Federal Reserve tightening to contain inflation and increased safe-haven demand for the greenback. Oil prices advanced after President Donald Trump rejected Iran’s latest proposal to reopen the Strait of Hormuz, while Tehran said it would not ease its conditions for reopening the vital waterway. On the monetary policy front, several Fed officials last week cited resilient economic growth and a strong labor market as reasons additional rate hikes could be necessary. Cleveland Fed President Beth Hammack said these factors, alongside concerns over government debt, are contributing to higher long-term Treasury yields. Investors now await the Fed’s preferred inflation gauge and key US employment data this week for additional clues on the outlook for monetary policy.

The dollar index fell below 101 on Friday, pausing a five-session rally that had taken the greenback to July highs. A modest decline in oil prices, amid signs that US and Iranian negotiators may be exploring a phased agreement to reopen the Strait of Hormuz, provided some relief to investors concerned about inflationary pressures. Nevertheless, the dollar gained around 1% on the week, marking a second consecutive week of gains. The move was supported by expectations of further monetary policy tightening by the Fed, continued uncertainty in the Middle East, the sequential rise in oil prices, and resilient US economic activity. The greenback was mostly lower against the yen on Friday after Japanese authorities said Tokyo and Washington remain committed to the stance underpinning July’s joint interventions. Finance Minister Katayama also said that President Trump had expressed concerns about the yen during a meeting with Prime Minister Sanae Takaichi earlier this week.