Dollar Set for Weekly Gain on Mideast Tensions

The dollar index hovered around 98.8 on Friday and was on track for its first weekly gain in three weeks, as stalled US-Iran peace efforts supported demand for the safe-haven currency. President Donald Trump said in a social media post on Thursday that he had ordered the US Navy to “shoot and kill” vessels laying mines in the Strait of Hormuz. The strategic waterway remains effectively closed, with both sides maintaining their blockades, driving energy prices higher and intensifying inflation risks. Meanwhile, the Federal Reserve is widely expected to keep the fed funds rate unchanged next week and for much of the year, as policymakers assess the impact of the Iran conflict on inflation and economic growth. Investors have also taken note of comments from Fed nominee Kevin Warsh earlier this week, in which he pledged to uphold independence in monetary policy decisions.

The dollar index hovered around 98.6 on Thursday, holding near a two-week high, as traders remained focused on the escalating standoff between the US and Iran. Uncertainty around peace negotiations persists, while rhetoric remains heated. In the latest developments, US President Trump ordered the US Navy to target any vessels laying mines in the Strait of Hormuz and pledged to intensify efforts to secure the waterway. The US continues to enforce a blockade on ships to and from Iranian ports, while Tehran has effectively curtailed international maritime traffic. As a result, oil prices remain well above pre-conflict levels, and activity in the Strait is largely stalled. Meanwhile, the Fed is widely expected to keep the fed funds rate unchanged next week and for most of the year. Markets are currently pricing in a 26% chance of a 25bps rate cut in December, down from earlier expectations of two cuts this year prior to the escalation in conflict.

The dollar index held around 98.5 on Thursday, hovering at over one-week highs amid a lack of progress in peace efforts between the US and Iran, supporting safe-haven demand for the greenback. The Strait of Hormuz also remains effectively closed, as Tehran maintains control of the strategic waterway and has seized two vessels, while the US blockade of Iranian ports continues, contributing to elevated energy prices and heightened inflation risks. Meanwhile, President Donald Trump said the current truce would remain in place indefinitely as Washington awaits a new peace proposal from Iran. Persistent inflation concerns have reinforced expectations that the Federal Reserve will keep interest rates unchanged this year, while Fed nominee Kevin Warsh pledged to preserve the central bank’s independence from the White House. Investors now turn their attention to weekly jobless claims and upcoming PMI data for further signals on the US economic outlook.