DXY Climbs after Hot Inflation Data

The dollar index rose to around 99.8 on Friday but held most of the losses from the previous session, weighed down by reduced safe-haven demand as President Donald Trump said a peace agreement with Iran could be signed as soon as this weekend in Europe. The comments sparked a sharp drop in oil prices, easing concerns about stubborn inflation and the need for interest rate hikes. Meanwhile, data released on Thursday showed US producer prices climbed 6.5% year-on-year in May, the highest reading since November 2022 and slightly above expectations of 6.4%, highlighting the growing impact of the Middle East energy shock. Together with earlier figures showing consumer inflation accelerated to a three-year high, the latest PPI data is likely to reinforce expectations that the Federal Reserve could raise interest rates later this year.

The dollar index climbed above 100 on Thursday, nearing a ten-week high as investors grew increasingly concerned that a further escalation in the conflict between the US and Iran could push energy prices higher and add to inflationary pressures. President Donald Trump warned that the US would strike Iran “very hard” and indicated that Washington could take control of Kharg Island in the near future. Meanwhile, fresh data showed that inflation accelerated in May at its fastest pace in more than three years, with the impact of the Iran conflict contributing to rising price pressures. According to the Bureau of Labor Statistics, the producer price index increased 6.5% year-on-year and rose 1.1% from the previous month. In Europe, the European Central Bank raised interest rates for the first time in nearly three years, signaling that it can no longer delay action as inflation risks increase amid the ongoing geopolitical uncertainty. The euro remained largely stable against the dollar.

The dollar index edged slightly below 100 on Thursday, struggling to extend its gains after the US military announced it had completed its latest strikes on Iran, raising hopes that peace negotiations could resume and dampening safe-haven demand for the greenback. Earlier, US forces launched fresh attacks on Iran after President Donald Trump accused Tehran of delaying talks over an interim peace agreement. Meanwhile, US consumer inflation accelerated in May to its fastest pace in more than three years, driven by soaring energy costs, though the reading came in line with market expectations. Traders modestly scaled back expectations for Federal Reserve rate hikes this year, although a quarter-point increase in December remains fully priced. Investors are now awaiting the latest producer inflation and weekly jobless claims data for further clues on the future path of Fed policy.