The US Dollar Index (DXY) extended its gains for a third consecutive day, trading around 99.90 during Asian hours on Wednesday, as traders awaited the release of crucial US inflation data later in the day [1]. The upcoming Consumer Price Index (CPI) and Producer Price Index (PPI) reports are seen as pivotal for shaping the Federal Reserve’s next interest rate decision, with analysts at Commerzbank emphasizing that the key issue is whether inflation is falling quickly enough to prevent further rate hikes [1][3].
Safe-haven demand for the US Dollar increased amid heightened uncertainty over Middle East peace talks. Reports indicated that Washington and Tehran were nearing an agreement regarding the Strait of Hormuz, with parallel negotiations between Iran and Oman also advancing. However, US President Donald Trump’s insistence that Tehran pay reparations to victims of attacks associated with the Islamic Republic injected renewed caution into markets [1][3]. Rising crude oil prices, driven by geopolitical tensions and supply concerns, have further fueled arguments for a more aggressive Fed policy stance, although the odds for a 25-basis-point rate hike in September have softened to nearly 48%, down from 52% the previous day according to the CME FedWatch Tool [1][3].
The USD/CAD pair ticked higher, snapping a three-day losing streak and trading around 1.3930, as the US Dollar preserved its weekly gains ahead of the US CPI release [2]. Elevated energy prices and persistent geopolitical uncertainties supported the Greenback, while technical analysis showed the pair sitting just above the 100-day Simple Moving Average at 1.3919 [2]. Meanwhile, the Canadian Dollar eased from a two-month high, with traders cautious about placing aggressive bets until after the inflation data [2].
Similarly, the New Zealand Dollar (NZD/USD) continued its losing streak for a third day, trading around 0.5870, as the US Dollar benefited from safe-haven flows and anticipation of the US inflation report [3]. While the Reserve Bank of New Zealand is expected to hike rates in September, the immediate focus remains on US inflation and Fed policy [3].
Fed official Goolsbee highlighted inflation as the top risk, maintaining a broadly hawkish tone but noting that the labor market is "stable, without being good" and that prices and affordability are "the biggest problem we are facing right now" [1]. The FXS Fed Sentiment Index slipped by 0.42 points to 136.59, indicating a modest pullback in perceived hawkishness but remaining well above the neutral threshold [1].
CONCLUSION
The US Dollar strengthened across major pairs, driven by safe-haven demand amid Middle East tensions and anticipation of key US inflation data. Market participants remain divided on the Fed’s rate trajectory, with recent data and commentary supporting a cautious but hawkish outlook. The upcoming inflation reports are expected to be decisive for the Dollar’s near-term direction and broader market sentiment.