US Dollar Index (DXY) picks up to 99.00 with Iran’s ceasefire into question

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The US Dollar (USD) has trimmed some losses to consolidate right above the 99.00 level on Thursday, after bouncing from lows at 98.50 on Wednesday. The safe-haven US Dollar has picked up as investors come to terms with the fragility of the ceasefire in Iran.

The US Dollar returns above 99.00 after bouncing from 98.50 on Wednesday.
Investors turn cautious amid the first cracks in Iran's ceasefire deal.
A hawkish tilt on the Fed's minutes provided additional support to the USD.

A few hours after the ceasefire was announced, Iranian authorities closed the Strait of Hormuz in retaliation for a massive attack by Israel in Lebanon. The US and Israel affirmed that Lebanon was not included in the deal, but Tehran issued a statement reporting the violation of three key clauses of the agreement, and casting doubts about the viability of further negotiations.

The peace process nevertheless remains alive, as Washington and Tehran announced that they will send delegations to start direct talks in Pakistan on Saturday. Meanwhile, US President Donald Trump threatened Iran with more “action” if they fail to comply with the ceasefire deal.

Fed minutes show a hawkish tweak

On Wednesday, the minutes of March’s Federal Reserve (Fed) monetary policy meeting showed a balanced stance. Further rate cuts are still on the table, but some voices raised the possibility of monetary tightening for the first time since the central bank started its monetary easing cycle in August 2024.

Later on Thursday, the US Personal Consumption Expenditures (PCE) Price Index is expected to show fairly steady price pressures in February, which is likely to be ignored by the market as it predates the war in Iran.

The focus this week will be on the March US Consumer Price Index (CPI) release, which will provide the first insight into the inflationary impact stemming from the war. Headline inflation is expected to have accelerated to a 3.3% yearly rate, its highest level in nearly two years, with the core CPI, stripped out of the costs of food and energy, increasing to a 2.7% year-on-year rate, from 2.5% in February.

Economic Indicator

Personal Consumption Expenditures - Price Index (YoY)

The Personal Consumption Expenditures (PCE), released by the US Bureau of Economic Analysis on a monthly basis, measures the changes in the prices of goods and services purchased by consumers in the United States (US). The YoY reading compares prices in the reference month to a year earlier. Price changes may cause consumers to switch from buying one good to another and the PCE Deflator can account for such substitutions. This makes it the preferred measure of inflation for the Federal Reserve. Generally, a high reading is bullish for the US Dollar (USD), while a low reading is bearish.

Economic Indicator

Core Personal Consumption Expenditures - Price Index (YoY)

The Core Personal Consumption Expenditures (PCE), released by the US Bureau of Economic Analysis on a monthly basis, measures the changes in the prices of goods and services purchased by consumers in the United States (US). The PCE Price Index is also the Federal Reserve’s (Fed) preferred gauge of inflation. The YoY reading compares the prices of goods in the reference month to the same month a year earlier. The core reading excludes the so-called more volatile food and energy components to give a more accurate measurement of price pressures." Generally, a high reading is bullish for the US Dollar (USD), while a low reading is bearish.

Why it matters to traders?

After publishing the GDP report, the US Bureau of Economic Analysis releases the Personal Consumption Expenditures (PCE) Price Index data alongside the monthly changes in Personal Spending and Personal Income. FOMC policymakers use the annual Core PCE Price Index, which excludes volatile food and energy prices, as their primary gauge of inflation. A stronger-than-expected reading could help the USD outperform its rivals as it would hint at a possible hawkish shift in the Fed’s forward guidance and vice versa.