The U.S. Dollar Index remains under pressure near 100.50, hovering around a multi-week low as expectations for further Fed rate hikes continue to fade.

The U.S. Dollar Index remains under pressure as cooling inflation signals reduce expectations of additional Fed rate hikes. However, concerns over energy-driven price pressures and rising tensions between the United States and Iran help cushion the Greenback’s downside. Market participants now await upcoming U.S. economic releases for fresh direction amid mixed fundamental signals.

The US Dollar Index (DXY), which measures the Greenback against a basket of major currencies, traded in a narrow range near 100.50 during Thursday’s Asian session, hovering close to the almost four-week low reached the previous day. While declining expectations of further Federal Reserve rate hikes continue to weigh on the dollar, concerns over energy-driven inflation and rising geopolitical tensions between the United States and Iran are helping to limit downside pressure.

Fresh economic data released on Wednesday showed that the US Producer Price Index (PPI) fell 0.3% in June, following a revised 0.6% increase in the previous month. The weaker PPI reading came after Tuesday’s softer-than-expected Consumer Price Index (CPI) report, reinforcing expectations that inflationary pressures are easing. As a result, investors have become less concerned that the Federal Reserve will need to maintain higher interest rates for an extended period, creating a bearish backdrop for the US dollar in the near term.

Geopolitical developments, however, continue to provide some support for the Greenback. Tensions between the United States and Iran have intensified significantly this week, with both countries carrying out additional military operations. On Wednesday, US forces conducted airstrikes targeting Iranian missile and drone facilities, while Tehran responded with retaliatory attacks against US-linked military assets across the region, signaling a worsening conflict.

US President Donald Trump further heightened tensions by warning that key Iranian infrastructure, including power stations and bridges, could become targets if hostilities escalate further. In addition, a US aircraft reportedly engaged an empty oil tanker attempting to breach the naval blockade around Iranian ports. At the same time, Iran has effectively restricted access through the Strait of Hormuz and threatened to disrupt shipping in the Bab el-Mandeb Strait.

These developments raise concerns about global trade flows and energy supplies, helping to keep oil prices elevated and maintaining a geopolitical risk premium in financial markets. Furthermore, market expectations for at least one additional 25-basis-point Federal Reserve rate hike remain intact, discouraging traders from aggressively selling the dollar. Investors are now awaiting upcoming US economic data releases for clearer direction on monetary policy and the next move in the currency markets.