Dollar Index Edges Down to 99

The dollar index fell to 99 on Thursday, retreating from session highs near 99.5, after Axios reported that the US and Iran had reached an agreement to extend the ceasefire, pending approval from President Donald Trump. The dollar was already under pressure following the release of the latest PCE report, which showed softer-than-expected inflation readings. Headline and core PCE rose 0.4% and 0.2% month-over-month, respectively, although annual inflation remained well above the Fed’s target at 3.8% and 3.3%. The data helped ease concerns that the recent energy shock would significantly worsen the inflation outlook. Still, market volatility and uncertainty are expected to persist, as conflicting signals have emerged in recent days and traders continue to await clear confirmation of a lasting end to the conflict, along with the full reopening of the Strait of Hormuz.

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.