The US Dollar Index (DXY), which measures the Greenback against a basket of six major currencies, trimmed its earlier gains on Thursday following reports from Axios that the United States and Iran had reached a preliminary 60-day agreement to extend the current truce. The deal, however, still requires final approval from US President Donald Trump, who has requested a few days to consider the agreement before making a decision [1]. The DXY was trading around 99 at the time of reporting, down from a seven-week high near 99.54 earlier in the day [1].
Initially, the US Dollar strengthened amid renewed US-Iran tensions, as safe-haven demand increased due to ongoing attacks between the two countries. The improvement in risk sentiment after the truce report led to the Greenback paring its gains [1]. Uncertainty remains high, as previous negotiations have failed to yield a final agreement, with key sticking points including Iran’s nuclear program, sanctions relief, and control of the Strait of Hormuz. Additionally, the release of frozen Iranian assets is reportedly part of any potential deal, according to Iran’s Tasnim News Agency [1].
On the economic data front, softer-than-expected US inflation figures also weighed on the Dollar. The core Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve’s preferred inflation measure, rose 0.2% month-over-month in April after a 0.3% increase in March. The yearly reading edged up to 3.3% from 3.2%, in line with market expectations but still well above the Fed's 2% target [1]. Elevated oil prices continue to pose inflation risks, reinforcing expectations that the Federal Reserve may need to keep interest rates higher for longer [1].
St. Louis Fed President Alberto Musalem commented that his baseline outlook is for inflation to "take longer to come back down to target." He noted the possibility of a rate increase if disinflation does not materialize in the next one to two quarters and warned that a growth slowdown could occur in the second half of the year [1].
CONCLUSION
The US Dollar Index retreated from its highs as news of a potential US-Iran truce improved market sentiment, though significant uncertainty remains regarding the finalization of the deal. Softer US inflation data and cautious remarks from the Federal Reserve suggest that interest rates may remain elevated, keeping the market attentive to both geopolitical and economic developments.