The United States Dollar Index climbs above 99.50 as escalating Middle East tensions and stronger-than-expected US PPI data boost demand for the Greenback.

• The US Dollar Index advances to near 99.80 during Friday’s Asian trading hours.
• US military forces intercepted Iranian drones targeting vessels near the Strait of Hormuz.
• US Producer Price Index inflation rose to its highest annual level since November 2022, while the monthly increase matched April’s pace.

The US Dollar Index (DXY), which tracks the US Dollar (USD) against a basket of six major currencies, trades near 99.80 during Friday’s Asian session. The index gains momentum as rising Middle East tensions and stronger-than-expected US inflation data support demand for the Greenback. Investors now await the preliminary June reading of the Michigan Consumer Sentiment Index, due later on Friday.

According to Fox News, US forces intercepted and destroyed two Iranian one-way attack drones near the Strait of Hormuz after Iran allegedly attempted to target commercial vessels passing through the critical shipping route.

The incident came shortly after US President Donald Trump stated on Thursday that he had called off additional military strikes on Iran, citing progress in negotiations toward a final agreement. Growing geopolitical uncertainty in the Middle East may continue to underpin the US Dollar in the near term.

Meanwhile, data released by the US Bureau of Labor Statistics on Thursday showed that producer inflation accelerated more than expected in May, reaching its highest annual level since November 2022. The Producer Price Index (PPI) rose 6.5% year-over-year, up from 5.7% previously and slightly above market expectations of 6.4%. On a monthly basis, PPI increased 1.1% in May, surpassing forecasts of 0.7%.

Core PPI, which excludes volatile food and energy prices, advanced 4.9% annually, matching April’s reading but falling short of the expected 5.4%. Even so, persistent inflation pressures are likely to keep the Federal Reserve (Fed) cautious about easing monetary policy anytime soon.

According to the CME FedWatch Tool, markets are currently pricing in a 43% probability of a quarter-point interest rate hike in December, compared with roughly 14% a month ago.