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United States Dollar Index struggles near 100.50, multi-week low amid fading Fed hike bets

  • DXY struggles to attract any meaningful buyers as signs of easing inflation temper Fed hike bets.
  • Energy-driven inflation fears and escalating US-Iran tensions help limit losses for the Greenback.
  • Traders now look to US economic data for some impetus amid a mixed fundamental backdrop.

The US Dollar Index (DXY), which tracks the Greenback against a basket of currencies, is seen consolidating around the 100.50 region during the Asian session on Thursday, close to the nearly four-week low touched the previous day. Receding US Federal Reserve (Fed) rate hike expectations favor USD bears, though energy-driven inflation fears and escalating US-Iran tensions help limit further losses.

Data released on Wednesday showed that the US Producer Price Index (PPI) fell 0.3% in June, compared to a revised 0.6% rise in the previous month. This comes on top of a soft US Consumer Price Index (CPI) report on Tuesday and eased concerns about the Fed keeping interest rates higher for an extended period. This, in turn, is seen as a key factor that acts as a headwind for the US Dollar (USD) and validates the near-term negative outlook.

On the geopolitical front, the conflict between the US and Iran has intensified sharply since the beginning of this week, with both sides carrying out fresh rounds of attacks. US forces launched new airstrikes on Wednesday, targeting Iranian missile and drone infrastructure. Tehran responded with retaliatory drone and missile attacks on US-linked military facilities across the region, which points to a deepening military confrontation.

US President Donald Trump further escalated tensions and warned that critical Iranian infrastructure, such as power plants and bridges, could be targeted if the situation continues to deteriorate. Furthermore, a US aircraft fired on an unladen oil tanker as it tried to break the naval blockade of Iranian ports. Meanwhile, Iran has effectively blockaded the Strait of Hormuz and threatened to expand disruptions to the Bab el-Mandeb strait.

This could severely affect maritime trade and global energy supply, which remains supportive of elevated oil prices and keeps the geopolitical risk premium in play. Moreover, bets for at least one 25-basis-points (bps) rate hike by the Fed remain firmly on the table, which, in turn, is holding back the USD bears from positioning for any further losses. Traders now look to the US macroeconomic releases for some impetus later this Thursday.

US Dollar Price This week

The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the Japanese Yen.

USDEURGBPJPYCADAUDNZDCHF
USD-0.54%-1.01%0.21%-0.75%-0.61%-1.27%-0.23%
EUR0.54%-0.48%0.78%-0.22%-0.12%-0.74%0.32%
GBP1.01%0.48%1.23%0.29%0.36%-0.27%0.84%
JPY-0.21%-0.78%-1.23%-1.05%-0.82%-1.53%-0.49%
CAD0.75%0.22%-0.29%1.05%0.23%-0.49%0.57%
AUD0.61%0.12%-0.36%0.82%-0.23%-0.63%0.34%
NZD1.27%0.74%0.27%1.53%0.49%0.63%1.11%
CHF0.23%-0.32%-0.84%0.49%-0.57%-0.34%-1.11%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).

Author

Haresh Menghani

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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