- US Dollar Index (DXY) recovers as Middle East tensions lift the safe-haven appeal of the USD against its G10 peers.
- Trump pushes Iran to make a deal “before [it’s] too late” – Oil prices surge, posing a threat to the Fed.
- US Michigan Consumer Sentiment and Consumer Expectations ahead, but inflation pressure could start building if Oil prices remain high.
The US Dollar Index (DXY) is trading higher on Friday, with markets shifting focus on Israel’s war against Iran. With headlines arriving early Friday about Israel’s attacks on Iran’s nuclear program and officials on Friday, the US Dollar (USD) rebounded off recent lows, gaining against its major counterparts.
The DXY, which measures the strength of the USD against a basket of currencies, has recovered above 98.00 at the time of writing. Although the US Dollar has received a slight boost from the hostilities in the Middle East, the DXY could continue to face pressure throughout the day.
On the economic agenda, investors are looking to the University of Michigan’s (UoM) Consumer Sentiment Index data and the UoM’s 1-year and 5-year Consumer Inflation Expectations for June.
Middle East tensions rise, US Dollar gains, US involvement in question
Although inflation has been showing signs of slowing, with the Consumer Price Index (CPI) and Producer Price Index (PPI) data missing expectations this week, lower energy prices contributed to the move. Israel’s launching this war could add pressure to energy prices. Oil prices are rallying following the attacks, which both US President Donald Trump and Israeli Prime Minister Netanyahu have confirmed that they are willing to continue.
In a post on social media, President Trump stated that “I gave Iran chance after chance to make a deal. I told them, in the strongest of words, to ‘just do it,’ but no matter how hard they tried, no matter how close they got, they just couldn’t get it done,”.
These comments have raised questions over the involvement of the US in the attacks, which could cause geopolitical risks to intensify between the US and other nations that have condemned the attacks.
Multiple nations, including Saudi Arabia and China, have condemned Israel’s attack. Chinese foreign ministry spokesperson, Lin Jian, said that “China urges all relevant parties to do more to promote regional peace and stability and to avoid further escalation of the situation. China stands ready to play a constructive role in helping de-escalate the situation.”
The recent escalation could contribute to an increase in broader geopolitical risks, which may affect the US Dollar’s safe-haven appeal, thereby limiting the DXY’s ability to recover.
Additionally, if Oil and energy face shortages or disruptions from the tensions, prices could continue to rise, posing another threat to inflation.
