Dollar Holds High, Inflation Risks Boost Interest Rate Expectations
The US dollar index held around 99.4 on Wednesday (May 20), trading near a six-week high. This strengthening occurred as the market again made inflation risks a key theme, amid escalating US-Iran tensions.
President Donald Trump said the US could resume attacks on Iran in "two or three days" if Tehran did not accept Washington's peace terms. The protracted conflict is said to have effectively kept the Strait of Hormuz closed to shipping, pushing oil prices higher and intensifying global inflationary pressures.
Rising inflation risks shifted market perceptions from expectations of a Fed rate cut this year to speculation that the central bank could actually raise rates before the end of the year. Fundamentally, higher inflation tends to strengthen expectations of a tighter policy, which in turn supports the dollar.
In terms of official comments, Philadelphia Fed President Anna Paulson expressed support for keeping interest rates steady and emphasized that a rate cut would depend on continued progress in lowering inflation. This statement reinforced the "wait-and-see" sentiment amid changing market expectations.
Going forward, the dollar's direction will be largely determined by whether inflation risks from energy persist and shift policy expectations. Markets are monitoring developments in US-Iran tensions, the status of the Strait of Hormuz, the dynamics of energy-driven inflation, and the consistency of Fed officials' messages regarding the conditions for lower inflation before opening the door to rate cuts. (asd)
Source: Newsmaker.id
