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14/07/26
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Dollar Holds Near 101 as Middle East Tensions Lift Fed Hike Bets
The US Dollar Index slipped after two straight sessions of gains, trading near 101 in Asian trade on Tuesday. Even so, the decline may be limited as investors continue to favor the dollar amid rising geopolitical risk in the Middle East.
Tensions intensified after US Central Command said it carried out precision strikes on Iranian military targets. The statement also highlighted the scale of the US military presence in the region, with more than 50,000 service members deployed across the Middle East. At the same time, Iran’s Revolutionary Guard Corps said two large tankers were stopped in the Strait of Hormuz after entering a mined route, while warning that cooperation with the United States could delay the reopening of the waterway and deepen global energy risks.
The latest developments have pushed oil prices higher and revived concerns that energy costs could keep inflation elevated. That, in turn, has reinforced expectations that the Federal Reserve may need to maintain restrictive policy for longer than previously assumed. Market pricing has moved sharply, with Fed funds futures now implying a 51% chance of a rate increase in September, compared with only a 23% probability that policy will remain unchanged.
Attention now turns to the US June Consumer Price Index report due on Tuesday. Economists expect headline inflation to fall by 0.1% month on month, while core inflation is forecast to rise 0.3%, suggesting that underlying price pressures may remain firm even if the broader index cools.
Investors are also waiting for congressional testimony from Federal Reserve Chair Kevin Warsh. His remarks will be closely examined for signals about whether policymakers are prepared to endorse the market’s more hawkish outlook.
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