Dollar Lacks Direction

The dollar index was little changed around 101 on Wednesday, as investors assessed the latest escalation in Middle East tensions. President Trump said that "as far as I'm concerned, the ceasefire is over," while threatening additional strikes on Iran and a blockade of the country's ports. The US also launched fresh strikes on Iran and revoked a waiver that had allowed the country to sell crude oil on global markets. These developments followed a series of attacks on tankers transiting the Strait of Hormuz in recent days. Oil prices surged again, reviving concerns about inflation and the prospect of monetary tightening. Reflecting this shift, traders increased their expectations for Fed rate hikes, with the implied probability of a September rate increase rising to around 69%, up from 58% the previous day. Meanwhile, minutes from the latest FOMC meeting showed that policymakers were divided over the future path of interest rates and discussed a range of economic scenarios.

The dollar index was little changed above 101 on Wednesday, hovering near one-week highs as investors assessed the latest escalation in Middle East tensions. US President Trump said that, "as far as I'm concerned, the ceasefire is over," while threatening additional strikes on Iran. The US launched fresh strikes on Iran and revoked a waiver that had allowed the country to sell crude on global markets. The latest developments followed a series of attacks on tankers transiting the Strait of Hormuz in recent days. Oil prices surged again, bringing gains over the past two sessions to nearly 10%, reviving concerns about inflation and the prospect of further monetary tightening. Reflecting this shift, traders raised their expectations for Fed rate hikes, with the implied probability of a September increase climbing to around 70%, up from 58% the previous day. Investors now await the release of the FOMC meeting minutes for further clues about the Federal Reserve's policy outlook.

The dollar index held above 101 on Wednesday after advancing in the previous session, supported by renewed safe-haven demand as the US military carried out fresh air strikes on Iran following recent attacks on ships transiting the Strait of Hormuz. The latest escalation threatened the interim US-Iran peace deal to end the war and pushed oil prices higher, stoking inflation fears and raising prospects for interest rate hikes. Meanwhile, investors awaited the minutes of the Federal Reserve’s June meeting for additional clues on the policy outlook after the central bank adopted a more hawkish tone at its June policy meeting. Markets are currently pricing in around a 50% chance of a Fed rate increase in September, up from about 46% a day prior. Elsewhere, data on Tuesday showed the US trade deficit widened to $77.6 billion in May, the largest since March 2025.