US Dollar Index Holds Above 101.00 Amid Escalating Middle East Tensions

The US Dollar Index (DXY) moved higher as investors sought the safety of the US dollar amid escalating geopolitical tensions in the Middle East. Tehran has rejected further negotiations, insisting that Washington first fulfill earlier commitments regarding transit security and Iranian oil exports. Meanwhile, market participants continue to anticipate one final interest-rate hike from the Federal Reserve before the end of the year, providing additional support for the greenback.

The US Dollar Index (DXY), which tracks the US Dollar against a basket of six major currencies, extended its gains for a second consecutive session, hovering around 101.10 during Monday’s Asian trading hours.

The Greenback continued to attract safe-haven flows as geopolitical tensions in the Middle East intensified. According to Bloomberg, the US Central Command (CENTCOM) carried out additional strikes on Sunday aimed at reducing Iran’s ability to threaten civilian vessels transiting the strategic waterway.

Reuters reported that US forces have struck more than 300 Iranian targets over the past three days, including approximately 140 targets on Saturday alone, while Washington and Tehran offered conflicting assessments regarding the status of maritime traffic through the strait. The latest escalation has further diminished prospects for diplomatic progress, with Tehran insisting that the US must first honor previous commitments related to shipping security and the normalization of Iranian oil exports before negotiations can move forward.

The US Dollar also found support from rising concerns that the intensifying US-Iran conflict could drive energy prices higher, fueling inflationary pressures and potentially keeping Federal Reserve policy restrictive for longer. Investors are now focused on Tuesday’s release of the US Consumer Price Index (CPI) report for fresh signals on the Fed’s policy path. Economists expect headline CPI to decline by 0.1% month-over-month in June, while core CPI is forecast to increase by 0.3%.

Market participants continue to price in one additional Federal Reserve rate hike before year-end. Attention will also turn to Fed Chair Kevin Warsh, who is scheduled to make his first official appearance before Congress on Tuesday, with traders looking for further guidance on the outlook for monetary policy.