Greenback Moves in a Volatile Range
The US Dollar Index traded unevenly on Friday as a light domestic economic calendar left currency traders focused on developments in the Middle East. Renewed hostilities between the United States and Iran have added caution to markets, although the dollar has received only modest support from the latest escalation.
Index Set for a Flat Weekly Finish
The DXY, which measures the dollar against a basket of six major currencies, was trading around 100.85 at the time of writing. Earlier in the Asian session, it slipped to a one-week low of 100.60. Despite intraday volatility, the index remains on track to finish the week nearly unchanged.
Trump Says Talks Can Continue
US President Donald Trump said Friday in a Truth Social post that Iran had asked to continue negotiations and that Washington had agreed. At the same time, he repeated that the ceasefire was “over”, keeping uncertainty high around the possibility of a quick diplomatic resolution.
Diplomacy and Conflict Keep Traders Cautious
The combination of renewed talks and continued military tension has created a mixed backdrop for markets. Traders are reluctant to assume that the conflict will end soon, but the possibility of ongoing negotiations has limited stronger safe-haven demand for the dollar.
Fed Expectations Support the Dollar
Hawkish expectations around the Federal Reserve have also helped prevent a deeper decline in the US dollar. Minutes from the Fed’s June policy meeting, released Wednesday, reinforced the view that interest rate cuts remain unlikely in the near term.
Inflation Remains the Main Fed Concern
Federal Reserve policymakers remain focused on inflation, which is still well above the central bank’s 2% target. New York Fed President John Williams said Thursday that “inflation is still far too high” and added that the Fed is “actively debating scenarios around inflation”.
Markets Price a Steady July Decision
According to the CME FedWatch Tool, markets are pricing in a roughly 66% probability that the Fed will keep interest rates unchanged at this month’s meeting. At the same time, traders see a 70% chance of a rate hike in September.
CPI Data Becomes the Next Major Test
Attention now turns to next week’s US Consumer Price Index data, scheduled for Tuesday. The inflation report could play an important role in shaping expectations for the Federal Reserve’s interest rate path over the coming months.
A Dollar Caught Between Risk and Rates
For now, the dollar remains caught between two forces. Middle East tensions are offering some defensive support, while the prospect of tighter Fed policy keeps dollar bears cautious. However, with diplomacy still active and no major US data released Friday, the DXY has struggled to build a clear direction.
