DXY Rises to 6-Week High

The dollar index climbed to 99.4 on Tuesday, its highest level in six weeks, amid growing concerns over accelerating inflation. War-driven energy price pressures have added to inflation risks, with earlier spikes in oil seen as reinforcing expectations that the Federal Reserve may need to maintain higher interest rates for longer or even tighten policy further. Although oil prices eased after reports that NATO is considering measures to help secure shipping through the Strait of Hormuz if it remains closed into July, energy costs remain elevated enough to keep inflation worries in focus. Market pricing has shifted sharply, with traders now expecting the Fed’s next move could be a rate hike potentially by the end of this year, compared with earlier expectations for multiple rate cuts in 2026 prior to the war. Investors are now looking ahead to the latest FOMC minutes and flash US PMI data for further insight into the outlook for monetary policy and economic activity.

The dollar index hovered around 99 on Tuesday after retreating in the previous session, as renewed optimism surrounding a potential US-Iran agreement eased inflation fears and reduced safe-haven demand for the currency. President Donald Trump said he suspended a planned strike on Iran scheduled for Tuesday after appeals from Saudi Arabia, Qatar, and the UAE, adding that the Gulf nations believed a deal with Tehran acceptable to Washington could still be reached. Prior to Monday’s pullback, the dollar had been strengthening as soaring oil prices driven by the Middle East conflict and rising US inflation led traders to rule out Federal Reserve rate cuts this year, while also increasing speculation that the Fed may still deliver a rate hike before year-end. Investors are now looking ahead to the latest FOMC minutes and flash US PMI data for further insight into the outlook for monetary policy and economic activity.

The dollar index fell to 99 on Monday, pulling back from the more than one-month highs reached last Friday, as fresh signs of progress in US-Iran negotiations improved investor sentiment. Iranian media reported that Washington had proposed a temporary waiver of oil sanctions until a final deal is reached, while separate reports suggested Tehran could accept a long-term freeze on its nuclear program. Still, the situation in the Middle East remains highly fragile and uncertain, with the Strait of Hormuz remaining mostly closed. As a result, oil prices continue to rise and are expected to stay elevated, adding to global inflationary pressures and limiting central banks’ scope to ease monetary policy. Markets currently expect the Fed to keep the fed funds rate unchanged through the end of the year, although the probability of an additional 25bps rate hike has increased to around 40%. The greenback weakened broadly, with the sharpest declines recorded against the British pound.