The US Dollar Index (DXY) remains volatile but largely stable around 100.85, although it earlier dipped to a one-week low of 100.60. This stability comes despite renewed hostilities between the United States and Iran, which have provided only limited support for the DXY. However, the dollar's overall sentiment has been improving, with bullish bets on the greenback reaching $40 billion as of June 30, the most optimistic level since 2015. President Donald Trump's suggestion of potential additional airstrikes on Iran further strengthened the dollar, with the Bloomberg Dollar Spot Index rising 0.2 percent and on track for its largest two-day gain in over a week.
Hawkish Federal Reserve expectations are also playing a significant role. The CME FedWatch Tool indicates a 66% probability that the Fed will keep interest rates unchanged this month, with a 70% chance of a rate hike in September. Minutes from the Fed's June meeting confirmed that rate cuts are not on the table due to concerns about inflation, which remains above the 2% target. New York Fed President John Williams emphasized on Thursday that "inflation is still far too high." Analysts anticipate that upcoming US Consumer Price Index (CPI) data next week will heavily influence the Fed's interest rate path.
Simultaneously, the geopolitical tensions are pushing up oil prices and Treasury yields. Brent crude futures rose 5.20 percent to $78.02 a barrel, and West Texas Intermediate futures gained 4.37 percent to $73.52 a barrel. The 10-year Treasury yield climbed to 4.56%, signaling investor reassessment of inflation and the potential for prolonged high interest rates. While bond markets reflect these inflation concerns, the dollar benefits from its safe-haven status amid increased geopolitical uncertainty. Eric Nelson of Wells Fargo suggests the dollar's rally might lose momentum, especially with a recent slowdown in job growth tempering rate hike expectations.
