Dollar Edges Up to 101.1

The dollar index strengthened to 101.1 on Tuesday, the strongest level in about a week, as investors continued to assess developments in the Middle East and the renewed surge in oil prices. Inflation concerns have resurfaced as tensions between the US and Iran continue to escalate, with the two countries exchanging strikes for a tenth consecutive day. On the monetary policy front, Fed Chair Warsh has repeatedly stressed that inflation remains a key concern for the central bank, a message that has been echoed by several other Fed officials in recent weeks. Policymakers have now entered their customary blackout period ahead of next week's FOMC meeting in which the central bank is widely expected to leave the federal funds rate unchanged. However, expectations for tighter policy remain elevated beyond July, with traders assigning roughly a 68% chance of a rate increase at the September meeting.

The dollar index traded near 101 on Tuesday after rising for three straight sessions, as ongoing hostilities between the US and Iran drove oil prices higher, reviving concerns about inflation and interest rate hikes. US attacks on Iran continued for a tenth straight day, with President Donald Trump warning that Tehran would be held responsible for the deaths of three US service members. Iran-backed Houthi militants also announced a maritime embargo against Saudi Arabia, raising concerns over energy shipments through the Red Sea. Meanwhile, Iran said mediators had presented proposals to ease tensions with the US after several days of hostilities, while reports pointed to a possible 10-day ceasefire. Markets now price in about a 55% chance of a Fed rate hike in September, up from 51% a day earlier. Meanwhile, Fed officials have entered the blackout period ahead of next week's FOMC meeting, where policymakers are widely expected to keep the federal funds rate unchanged.

The dollar index hovered around 101 on Monday, as investors continued to assess developments in the Middle East and their implications for the economic and monetary policy outlook. Tensions between the US and Iran escalated over the weekend, sending oil prices to six-week highs before they pared most of their gains following comments from Iran's foreign ministry indicating that negotiations with the US could continue if the country's national interests are respected. Last week, both CPI and PPI reports came in softer than expected, but the recent surge in oil prices has raised concerns that the disinflation trend could stall. Markets continue to price in one Fed rate hike this year, with the probability of a September move remaining above 60%. Meanwhile, Fed officials have entered the blackout period ahead of next week's FOMC meeting, where policymakers are widely expected to leave the federal funds rate unchanged.