The US Dollar Index (DXY), which measures the value of the US Dollar against six major currencies, is trading around 99.00 during Asian hours on Thursday, holding losses despite previously registering modest gains [1]. The depreciation comes amid escalating conflict in the Middle East, specifically the US-Israel war with Iran, which has pushed oil prices higher and fueled inflation concerns [1]. The Iran war has entered its seventh day, with Iran launching missiles and drones across the Gulf, striking an oil refinery in Bahrain, while Israel continued airstrikes on Tehran, and the US suspended operations at its embassy in Kuwait [1].
These developments have reduced bets on Federal Reserve (Fed) rate cuts, as safe-haven demand for the US Dollar may rise in response to geopolitical tensions [1]. Fed officials are considering the possibility of further rate hikes if inflation remains above target, with Chicago Fed President Austan Goolsbee emphasizing the importance of Fed independence in controlling inflation [1].
US President Donald Trump stated that Iranian officials reached out to him to attempt to end the war, but he insisted it was too late and that the US is pushing to destroy Iran [1]. Traders are awaiting US labor data, including Nonfarm Payrolls (NFP), with consensus expectations around 59K for February, following January’s above-trend reading of 130K. Retail Sales are expected to fall 0.3% month-over-month in January, after a flat reading in the previous month [1].
The combination of geopolitical risk, rising oil prices, and shifting Fed policy expectations is contributing to volatility in the US Dollar Index, with market participants closely monitoring upcoming economic data and developments in the Middle East [1].
CONCLUSION
The US Dollar Index is under pressure near 99.00 amid heightened geopolitical tensions and inflation concerns, despite fading rate cut bets. Market participants are awaiting key US labor and retail sales data, while Fed officials signal a cautious stance on future rate hikes. The ongoing Middle East conflict and its impact on oil prices remain central to market sentiment.