DXY Little Changed

The dollar index hovered near 99.2 as investors assessed the latest developments in the Middle East and mixed signals over a possible US Iran agreement that could end the war and reopen the Strait of Hormuz. Inflation data added to the uncertainty, with headline and core PCE readings rising 0.4% and 0.2% month over month, both below expectations, although annual rates remained elevated at 3.8% and 3.3%, still well above the Federal Reserve’s target. Personal spending increased in line with forecasts, while first quarter GDP growth was revised lower. Fed officials continued to strike a cautious tone, with Vice Chair Jefferson warning that inflation risks remain skewed to the upside and Minneapolis Fed President Kashkari saying price pressures are still too high. Investors remain concerned that elevated energy costs linked to disruptions in Hormuz could keep inflation persistent and delay potential rate cuts.

The dollar index rose above 99.3 on Thursday, marching toward seven-week highs as reports of fresh US strikes on an Iranian military facility clouded prospects for a peace agreement and kept concerns over inflation and interest rates elevated. The two countries also remained at odds over key issues including Tehran’s insistence on maintaining control of the Strait of Hormuz and preserving its nuclear program. Meanwhile, Minneapolis Fed President Neel Kashkari said on Thursday that lowering inflation in the US remains his top priority, noting that consumer prices are still elevated while the labor market continues to show resilience. Investors are now focused on the upcoming PCE price index release, the Federal Reserve’s preferred inflation measure, for further guidance on the outlook for US interest rates. Markets are currently pricing in roughly a 50% chance of a Federal Reserve rate hike by December.

The dollar index was little changed at 99 on Wednesday, hovering near April highs, as investors continued to focus on developments in the Middle East. Hopes that the US and Iran may be closer than ever to reaching an agreement to end the conflict and reopen the Strait of Hormuz pushed oil prices lower, helping to ease concerns over another potential spike in inflation. The optimism came despite mixed signals from both Washington and Tehran, as well as fresh strikes earlier this week. Iranian state television reported details of an unofficial draft memorandum between Tehran and Washington, under which the two countries would restore traffic flows through the Strait of Hormuz, while Iran and Oman would establish a mechanism to manage passage through the waterway. However, the White House later denied the report. Meanwhile, on the monetary policy front, markets are currently pricing in roughly a 50% probability of a Federal Reserve rate hike by December.