Dollar Hovers at Six-Week High

The US Dollar Index hovered around 99.4 on Wednesday, trading at six-week highs as escalating tensions between the US and Iran kept inflation concerns elevated and strengthened expectations for possible rate hikes. President Donald Trump warned that the US could resume strikes on Iran within “two or three days” if Tehran failed to agree to Washington’s peace terms. The prolonged conflict has effectively kept the strategic Strait of Hormuz closed to shipping traffic, pushing oil prices higher and intensifying global inflationary pressures. Market sentiment has increasingly shifted from expectations of Federal Reserve rate cuts this year toward speculation that the central bank could instead raise rates before year-end. Meanwhile, Philadelphia Fed Bank President Anna Paulson said she supported keeping borrowing costs steady and indicated that any rate cuts would depend on sustained progress in bringing inflation lower.

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.