DXY Hovers at 6-Week Low

The dollar index hovered near 98 on Wednesday, lingering around six-week lows as investors grew more optimistic about diplomatic progress between the US and Iran, while oil prices remained below recent peaks. Financial markets have largely unwound the risk premium that built up after the conflict began in late February, as both sides move toward a second round of negotiations. President Donald Trump said the war is “very close to over,” adding that Iran appears open to a peace deal, with talks expected to resume shortly. On the monetary policy front, the Federal Reserve is widely anticipated to keep interest rates unchanged this month and likely through the year, while Chicago Fed President Austan Goolsbee warned that any rate cuts could be pushed back as far as 2027 if elevated energy prices persist.

The dollar index traded near 98 on Wednesday, hovering at six-week lows as hopes for a diplomatic solution to the Middle East conflict dampened safe-haven demand for the currency. The move has nearly wiped out all the gains made since the Iran war began. The US and Iran are reportedly preparing for a second round of peace talks before the current two-week ceasefire expires, even as rising tensions in the Strait of Hormuz continue to exacerbate global energy risks. Oil prices pulled back sharply, easing concerns over inflation and potential central bank rate hikes. The Federal Reserve is now widely expected to keep rates unchanged for the remainder of the year, with Chicago Fed President Austan Goolsbee suggesting that rate cuts could be delayed until 2027 depending on how persistently high oil prices remain. Meanwhile, markets will focus on upcoming data including import and export price indexes, alongside the NY Empire State Manufacturing Index and the NAHB Housing Market Index.

The dollar index fell to 98 on Tuesday, extending its decline to a seventh straight session and reaching its lowest level since late February before the Iran conflict began. Traders remain hopeful that a permanent ceasefire agreement between the US and Iran can be reached. Although weekend negotiations failed and President Donald Trump announced a blockade on Iranian oil shipments, he later indicated that Tehran had made contact and was open to further discussions. Expectations of a ceasefire and a possible reopening of the Strait of Hormuz weighed on oil prices, reducing pressure on inflation and lowering expectations for aggressive Federal Reserve tightening. On the data front, US producer prices rose 0.5% in March, below forecasts, while ADP figures showed the economy added 39,250 jobs in the week ending March 28, marking a fourth week of solid job growth.