The dollar edges higher as oil spikes during the Iran war, with in-line CPI figures barely affecting markets.

The U.S. dollar strengthened on Wednesday as rising oil prices reignited inflation concerns, while an in-line and backward-looking U.S. consumer inflation reading did little to reinforce expectations for Federal Reserve rate cuts.

By 16:03 ET (20:03 GMT), the U.S. Dollar Index—tracking the greenback against a basket of six major currencies—had climbed 0.4% to 99.22. The euro slipped 0.3% to 1.1570, while the British pound was largely unchanged at 1.3416.

Oil prices climb despite record release from strategic reserves

Oil prices rose on Wednesday as the conflict with Iran showed little sign of easing, with a record release of 400 million barrels from emergency reserves by the International Energy Agency (IEA) doing little to calm concerns about rising inflation.

In a note, analysts at ING said the foreign-exchange market remains “strongly driven” by the recent sharp swings in oil prices.

Market attention remains focused on the Strait of Hormuz, the narrow passage south of Iran through which roughly one-fifth of the world’s oil supply passes, much of it headed to Asia. Concerns over potential Iranian attacks have caused a buildup of vessels on both sides of the strait, as shipping companies seek to ensure crew safety and face difficulties securing insurance for voyages.

Brent crude, the global benchmark, is now trading near $90 per barrel after surging to $120 earlier in the week. U.S. gasoline prices have also climbed, raising the risk of renewed inflationary pressure that could prompt the Federal Reserve to adopt a more hawkish monetary policy stance. Higher interest rates may in turn attract foreign capital, providing additional support for the U.S. dollar.

Oil prices have remained highly sensitive to developments in the Middle East. Comments from the U.S. Energy Secretary that the military had escorted a tanker through the Strait of Hormuz sent Brent prices swinging between $81 and $92 per barrel.

President Donald Trump has also threatened to intensify U.S. attacks on Iran following reports that Tehran had deployed naval mines in the Strait of Hormuz. After a CNN report suggested that mines had been placed in the bottleneck—though not yet extensively—Trump warned on Tuesday that Iran would face retaliation “at a level never seen before” if the mines were not removed.

The IEA’s coordinated release announced on Wednesday far exceeds the 182 million barrels made available by member countries after Russia’s invasion of Ukraine in 2022.

ING analysts described the move as a “temporary measure,” arguing that only military de-escalation would be capable of pushing crude prices sustainably lower. They added that the large reserve release could also signal that markets should not expect an immediate ceasefire.

“In our view, these mixed signals could prevent the dollar from falling much further today unless there are encouraging headlines on de-escalation,” the ING analysts said.

U.S. consumer inflation comes in line with forecasts

The February Consumer Price Index (CPI) report drew attention on Wednesday, although the data does not reflect the impact of the Iran conflict or the resulting surge in oil prices, making it more backward-looking than usual.

According to the U.S. Bureau of Labor Statistics, headline CPI rose 0.3% month-on-month and 2.4% year-on-year in February, both in line with market expectations. Core CPI increased 0.2% from the previous month and 2.5% from a year earlier, also matching forecasts.

Despite meeting estimates, the report is likely to receive limited attention as markets focus on developments in the Middle East. Concerns that higher oil prices could trigger renewed inflationary pressure may prompt the Federal Reserve to keep interest rates on hold.

“The good news is that inflation didn’t come in higher than expected in this morning’s CPI report, but the data is backward-looking and reflects a period before the war in Iran began,” said Chris Zaccarelli, chief investment officer at Northlight Asset Management.

“It is widely assumed — and we agree — that the Fed will remain on hold for longer as policymakers wait to see whether inflation expectations begin to rise and become entrenched, or if conditions return to where they were before the military operations in the Middle East,” Zaccarelli added.

Sources: Anuron Mitra