Dollar Index Strengthens Amid US-Iran Tensions and Inflation Risks
The dollar index strengthened above 99.3 on Thursday (May 28), extending its climb to a seven-week high, after reports of a new US attack on Iranian military facilities added to uncertainty about the direction of diplomacy between the two countries.
The prospects for a peace deal are further clouded by persistent differences, including Tehran's insistence on maintaining control of the Strait of Hormuz and safeguarding its nuclear program. President Donald Trump called himself "dissatisfied" with the progress of negotiations and rejected reports that Iran and Oman could jointly monitor shipping through the Strait of Hormuz.
The combination of geopolitical escalation and uncertainty surrounding strategic energy routes like the Strait of Hormuz tends to maintain a risk premium in the market. At the same time, concerns that geopolitical disruption could sustain inflationary pressures have increased market sensitivity to the interest rate outlook, which in turn has supported demand for the dollar.
Investors' attention now turns to the release of the PCE price index, the Federal Reserve's key inflation measure, for fresh clues on the path of US interest rate policy in the coming months.
The market currently rates a roughly 50% chance of a Fed rate hike in December, so the dollar's direction will be heavily influenced by whether the PCE confirms persistently high inflationary pressures or is beginning to ease. In addition to data, market participants will also be monitoring developments in US-Iran negotiations, headlines related to further attacks, and the dynamics of shipping surveillance issues in the Strait of Hormuz as risk factors that could quickly shift sentiment. (asd)
Source: Newsmaker.id
