United States Dollar Index posts modest gains to near 100.00 amid rising Middle East tensions

US Dollar Index trades in positive territory around 100.00 in Wednesday’s Asian session.
Escalating tensions in the Middle East boost the US Dollar.
The US May CPI inflation data will be the highlight later on Wednesday.

Lallalit Srijandorn FXStreet

The US Dollar Index (DXY), an index of the value of the US Dollar (USD) measured against a basket of six world currencies, currently trades near 100.00 during the Asian trading hours on Wednesday. The DXY trades with mild gains amid rising tensions in the Middle East after the United States (US) launched strikes on Iran to retaliate for the downed helicopter. The US inflation report will take center stage later in the day.

Iran’s Islamic Revolutionary Guard Corps (IRGC) said it attacked the US Fifth Fleet in Bahrain with drones in response to US strikes on areas in southern Iran, adding that strikes are continuing. Iran's revolutionary guards on Wednesday said that they targeted the Ali Al Salem base in Kuwait with drones and also targeted a US base in Jordan with a missile attack.

Earlier Wednesday, the US launched a new wave of strikes on Iran in what it called a proportional response to the shooting down of a US helicopter gunship near the Strait of Hormuz a day earlier. Fears of wider war in the Middle East could boost the US Dollar as a safe-haven currency.

Traders brace for the US Consumer Price Index (CPI) inflation data for more cues about the US interest rate path. Any signs of hotter inflation in the US could lead traders to price in a higher probability of the Federal Reserve (Fed) raising interest rates, which underpin the DXY.

Markets are now pricing in a 47% chance of a quarter-point rate hike in December, up from just about 14% a month ago, according to the CME FedWatch tool.

Inflation FAQs

What is inflation?

Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.

What is the Consumer Price Index (CPI)?

The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.

What is the impact of inflation on foreign exchange?

Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.

How does inflation influence the price of Gold?

Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.

Author

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

AUD/USD consolidates above 0.7000/two-month low; bearish potential intact

The AUD/USD pair oscillates in a narrow range during the Asian session, and moves little following the release of mixed inflation figures from China. Spot prices currently trade around the 0.7025 region, nearly unchanged for the day, and remain within striking distance of a nearly two-month low set on Tuesday. Renewed hostilities between the US and Iran temper hopes for a deal to end the over three-month-old war.

Japanese Yen languishes despite wholesale inflation accelerates in May

USD/JPY flatlines after experiencing volatility, trading around 160.40 during the Asian hours on Wednesday. The pair continues to hold its ground, reflecting a struggling Japanese Yen that has failed to find support despite a massive acceleration in wholesale inflation. Driven by surging energy costs linked to the ongoing Middle East conflict, Japan’s Producer Price Index jumped 6.3% year-over-year in May. This hot printing comfortably outpaced April’s upwardly revised 5.3% figure and surpassed market consensus of 5.5%, marking the fastest pace of wholesale price growth in three years.

Gold plummets below $4,200 amid US‑Iran tensions ahead of US CPI

Gold extends the recent breakdown momentum below a technically significant 200-day Simple Moving Average (SMA) and drops to a fresh low since March 23, further below the $4,200 mark during the Asian session. Crude Oil prices rise amid renewed hostilities between the US and Iran, fueling inflation fears and bolstering bets for more hawkish central banks.

Bitcoin remains vulnerable, Ethereum weakens further, XRP signals more downside

Bitcoin, Ethereum, and Ripple remain under pressure mid-week, as the broader cryptocurrency market struggles to regain recovery momentum after last week’s massive correction. BTC struggles below $62,000, ETH continues to weaken below $1,650, while XRP’s momentum indicators remain biased toward further downside.

US CPI data set to show inflation at three-year high in May, backing Fed hawkish tilt

The US Bureau of Labor Statistics will publish the May Consumer Price Index (CPI) data on Wednesday. The report is expected to show another step up in consumer inflation, driven by the persistently high Oil prices due to the ongoing crisis in the Middle East.

The US economy defies the rules: 100 days into the Oil shock and the recession signal is still missing

More than three months after the start of the Iran war and the resulting disruption to global energy markets, the US economy continues to display remarkable resilience. The conflict has triggered a sharp rise in Oil prices, reignited inflationary pressures and fueled widespread concerns about a potential economic slowdown.