Dollar Weakens Slightly Ahead of PCE, Still Supported by Hormuz Geopolitics
The US dollar index (DXY) edged lower to around 99.70 during Friday's Asian session, but remained on track for a second consecutive weekly gain and held near its highest level since November 2025. The daily weakness indicates a market awaited release of US PCE inflation, while structural support continues to come from safe-haven flows related to the escalating conflict in the Middle East.
Geopolitical tensions remain a key driver of dollar demand. The Pentagon and the National Security Council (NSC) have expressed disdain for Iran's intention to close the Strait of Hormuz in response to a US military strike, amid ongoing operations. Iran's new supreme leader, Mojtaba Khamenei, also stated that Hormuz should remain closed and that Tehran will continue attacks on neighboring Gulf states.
For the foreign exchange market, the combination of geopolitical risks and energy use reinforces the "higher for long" narrative on US interest rates. Expectations for a Fed rate cut have diminished again due to oil-fueled inflation, which is seen as complicating the policy path, making the dollar relatively resilient despite fluctuating global risk appetite.
The next focus is the January Personal Consumption Expenditures (PCE) Price Index report, released Friday. The consensus in the material is that headline PCE is expected to rise 2.9% (yoy), while core PCE is projected at 3.1% (yoy). If inflation is lower than expected, room for short-term dollar weakness could open up; conversely, a warmer surprise could potentially strengthen the DXY through repricing interest rates and yields. (asd)
Source: Newsmaker.id
