Dollar Holds Gains After Hot CPI Report

The dollar index held above 98 on Wednesday after advancing in the prior session, supported by stronger-than-expected US inflation data that reduced expectations for Federal Reserve interest rate cuts. US consumer inflation rose 3.8% in April, above forecasts of 3.7% and the highest since May 2023, as surging energy prices tied to the Middle East conflict added to price pressures. Markets have largely priced out any Fed rate cuts this year, while expectations for a quarter-point hike in December have climbed to 35%. Investors are now focused on the latest producer inflation report for further signals on how the Iran war is affecting the US economy. Meanwhile, oil prices remained elevated as diplomatic efforts to resolve the US-Iran conflict stalled, keeping inflation risks high. President Donald Trump is also due to meet Chinese President Xi Jinping this week, though he indicated trade talks will take precedence over the Iran situation.

The dollar index climbed above 98 after a key US inflation report highlighted the economic impact of higher energy costs and supply disruptions linked to the war in Iran. Consumer prices rose 3.8% year-on-year in April, the fastest pace since 2023, while monthly inflation accelerated to 0.6%. Core CPI, which excludes food and energy, increased 0.4% from March and 2.8% annually, exceeding forecasts. Part of the rise was linked to distortions in rent calculations following the 2025 government shutdown. Investors also monitored growing tensions in the Middle East, with President Donald Trump reportedly frustrated by the lack of progress in negotiations with Iran. The Strait of Hormuz remains largely closed, severely disrupting global energy shipments and pushing oil prices higher. The supply shock has begun feeding into broader measures of supply-chain stress, reviving concerns about persistent inflationary pressures and keeping central banks cautious on interest-rate policy.

The dollar index moved back above 98 on Tuesday as President Trump cast doubt on the sustainability of US-Iran ceasefire after he rejected Tehran’s latest peace offer, boosting safe-haven demand for the greenback. Reports also suggested that Trump is expected to meet with his national security team to consider a potential resumption of military operations, while revisiting plans to escort commercial vessels through the Strait of Hormuz. The ongoing conflict has kept oil prices elevated, reinforcing inflation risks and strengthening expectations that interest rates may need to remain higher for longer to contain price pressures. Meanwhile, investors were awaiting April’s consumer inflation report for clearer signals on how the Iran war is affecting the economy and shaping the Federal Reserve’s policy outlook. Trump is also set to meet with Chinese President Xi Jinping later this week, with trade relations and artificial intelligence expected to dominate the agenda.