FX.co ★ Dollar Steadies as Traders Assess Middle East Developments

The dollar index was little changed at 100.9 on Monday, holding near the range it has maintained throughout July as investors weighed developments in the Middle East alongside the outlook for US monetary policy. Fresh military exchanges between the United States and Iran, coupled with conflicting reports about whether the Strait of Hormuz remains open to shipping, drove oil prices higher.

Markets are also awaiting this week’s US CPI and PPI releases for additional insight into inflation dynamics, as well as Fed Chair Warsh’s testimony before Congress for further guidance on the central bank’s policy trajectory. Futures pricing currently implies at least one Federal Reserve rate hike this year, with the probability of a September move hovering around 71%.

In currency markets, the dollar weakened against the euro but firmed against the yen, with the Japanese currency under pressure following a Reuters report indicating that Japan has no immediate plans to alter the asset allocation of its state pension funds.