USD Hits Five-Day High, Markets Eye Iran Risk
The US Dollar Index (DXY) traded with limited gains on Wednesday, as market participants monitored renewed tensions between the United States and Iran. At the time of writing, the DXY was trading around 101.20, hitting a five-day high.
The dollar's gains came after US President Donald Trump declared that the ceasefire agreement with Iran was "over." However, Reuters later reported, citing sources familiar with the talks, that Trump did not repeat that statement during a closed-door meeting of NATO leaders.
Tensions escalated after the US and Iran clashed again following attacks on commercial vessels near the Strait of Hormuz. Trump also warned that the US would likely strike Iran again, while Iranian media reported that Tehran could close the Strait of Hormuz if there were further attacks.
This escalation pushed oil prices sharply higher and rekindled inflation concerns. West Texas Intermediate (WTI) crude oil was trading around US$74.50 per barrel, up more than 8% this week. This has led the market to reassess the possibility of a Fed interest rate hike.
According to the CME FedWatch Tool, the market now rates a 68% chance of a rate hike at the September meeting, up from 58% the day before. Investors' next focus will be on the June FOMC meeting minutes, which will be released during the US session, for new clues regarding the direction of interest rate policy.
From a market analyst perspective, ING FX strategist Francesco Pesole believes the FOMC minutes will clarify how seriously Fed officials are considering a rate hike. He expects the minutes to reinforce the hawkish message and support the US dollar, although not strong enough to trigger a major shift in interest rate expectations.
For the DXY, Pesole sees movement likely to remain limited in the near term, with the potential for an increase to the 101.50–102.00 area if there is no major intervention from Japanese authorities.
Source: Newsmaker.id
