US Dollar Index Stable Even as Investors Consider Geopolitics, Fed Forecasts

The U.S. Dollar Index (DXY) traded in a volatile range on Friday as a limited U.S. economic calendar keeps investors watching developments in the Middle East following the resumption of hostilities between the United States (US) and Iran this week. Still, the latest tightening has provided only confined support, with DXY ending the week virtually unchanged.

At the time of writing, the index, which tracks the dollar against a basket of six major currencies, is trading around 100.85 after falling to a one-week low of 100.60 earlier in the Asian session.

On Friday, U.S. President Donald Trump said in a Truth Social post that Iran had requested continued talks and that the United States had agreed, while repeating that the ceasefire “is over.”

A combination of diplomacy and ongoing tensions make merchants cautious about ending the war soon. Meanwhile, hawkish expectations from the Federal Reserve (Fed) keep US dollar (USD) bears on the sidelines.

Minutes from the Fed’s June policy meeting released Wednesday reinforced the view that interest rate cuts are off the table for now as policymakers remain concerned about inflation, which is well above the central bank’s 2% target.

New York Fed President John Williams said Thursday that “inflation is still far too high,” adding that the Fed is “actively debating inflation scenarios” and remains committed to bringing inflation back to target.

According to the CME FedWatch Tool, markets are pricing in about a 66% probability that the Fed will leave interest rates unchanged at this month’s meeting, while the probability of a rate hike in September is 70%.

Attention now turns to next week’s U.S. Consumer Price Index (CPI) data, due on Tuesday, which could shape expectations about the path of Fed interest rates in the coming months.

Economic indicator

Consumer price index (m/m)

Inflationary or deflationary trends are measured by periodically summing the prices of a basket of representative goods and services and presenting the data as the Consumer Price Index (CPI). CPI data is compiled monthly and published by the Commission United States Department of Labor Statistics. MoM data compares commodity prices in the reference month with the previous month. CPI is a key indicator measuring inflation and changes in purchasing trends. Generally, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.