Dollar Index Remains Near 101

The dollar index traded near 101 on Thursday, little changed from the previous two sessions, as investors continued to assess the implications of the Middle East conflict for inflation and monetary policy. The US and Iran continued to exchange strikes, although the surge in oil prices eased after soaring over the previous two sessions. Minutes from the Fed's June meeting showed policymakers remained divided over the path of interest rates, discussing several possible scenarios, with only a few officials favoring a rate hike. Markets continue to price in at least one Fed rate hike by the end of 2026, while the probability of a move at the September meeting stands at around 64%. The dollar was slightly weaker against the Japanese yen, as investors assessed whether Japanese authorities had intervened to support the currency. The euro edged higher against the greenback as expectations for another ECB interest rate hike strengthened.

The dollar index held near 101 on Thursday and remained on track for weekly gains as a renewed conflict in the Middle East supported safe-haven demand for the currency. The US military confirmed it had carried out strikes on Iran for a second straight day, while Tehran threatened a large-scale retaliatory operation against US military bases across the region. The latest hostilities pushed oil prices higher, fueling inflation concerns and reinforcing expectations that interest rates could remain higher for longer. Meanwhile, minutes from the Federal Reserve’s June meeting showed that only a few policymakers favored a rate increase, though officials expressed growing concern over inflation. Markets continue to price in at least one Fed rate hike by the end of 2026. Investors are now awaiting the latest weekly jobless claims and existing home sales data for fresh clues on the interest rate outlook.

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.