FX.co ★ Dollar Set for Strong Monthly Advance

The dollar index hovered around 101.4 on Wednesday and was on track to gain about 2% for the month, supported by concerns over persistent energy-driven inflation, a resilient US economy, and hawkish signals from Federal Reserve officials that have reinforced expectations of further interest rate hikes.

Oil prices remain elevated as US–Iran negotiations stay deadlocked, though signs of improving energy flows from the Middle East have eased some supply concerns.

On the policy front, Fed Governor Michael Barr reiterated that additional rate increases will likely be needed to bring inflation under control, while New York Fed President John Williams said another hike “late this year” could be appropriate. Markets are now pricing in nearly one full percentage point of additional Fed tightening over the next 12 months.

Investors are turning their attention to Wednesday’s release of the PCE price index, the Fed’s preferred inflation gauge, followed by Friday’s closely watched monthly employment report for further policy guidance.