Dollar Index Rises Above 102

The dollar index strengthened to above 102.4 on Wednesday, its highest level since March 2025, as rising oil prices fueled inflation concerns and again reinforced expectations that Fed would need to keep monetary policy tighter for longer. Investors are also awaiting the release of the FOMC minutes later in the day for further insight into the Fed’s policy outlook, following last month’s 25-basis-point rate hike, the first increase in borrowing costs since 2023. Markets are currently pricing in nearly a 78% chance that the central bank will leave rates unchanged this month, while the probability of a 25bps rate hike in December stands at around 69%. The greenback strengthened broadly, gaining the most against the euro, as political and fiscal concerns in Spain and France weighed on the common currency.

The dollar index steadied around 102 on Wednesday after coming under pressure in the previous session, as investors awaited minutes from the Federal Reserve’s latest meeting for clues on the outlook for monetary policy. Traders also watched remarks from Fed officials, with policymakers increasingly signaling a less hawkish stance on interest rates following softer-than-expected PCE inflation and jobs data released last week. Markets are currently pricing in nearly an 80% chance that the Fed will keep policy unchanged this month. Meanwhile, investors continued to monitor bond markets after a recent selloff fueled by concerns over persistent inflation, rising fiscal risks and elevated levels of AI-related debt issuance. Elsewhere, oil prices climbed as Iran intensified attacks on tankers in the Strait of Hormuz and Saudi forces continued clashes with the Houthis, keeping inflationary pressures and rate hike concerns in focus.

The dollar index weakened to 101.8 on Tuesday, pressured by an easing in concerns over high energy prices and the need for further monetary tightening. Oil prices fell to a one-month low amid signs that Middle East crude exports are recovering, helping to ease inflation concerns and reducing expectations for immediate further increases in the Fed funds rate. The Federal Reserve is widely expected to leave borrowing costs unchanged this month, while markets are pricing in a 25bps rate hike in December. The greenback weakened broadly, with the largest declines recorded against the euro. The common currency fell as much as 0.8% on Monday amid concerns over elevated debt and political deadlock in France, while the prospect of an upcoming snap election in Spain added to the headwinds.