FX.co ★ Dollar Strengthens

The dollar index rose to 101.3 on Thursday, its highest level in about three weeks, as surging oil prices and escalating geopolitical tensions strengthened expectations of further Federal Reserve rate hikes. Markets are now pricing in more than a 33% probability of an increase at next week’s meeting, while the implied likelihood of a September hike has climbed above 78%, up from 61% just a day earlier.

Hostilities in the Middle East continue to intensify, with no signs of an imminent resolution. In response, oil prices have soared to nearly 31% above their pre-conflict levels from earlier this month. While overall inflationary pressures have so far remained relatively contained, the latest spike in energy costs has rekindled concerns that higher oil prices could feed through to broader inflation, potentially prompting the Fed to maintain a tighter policy stance for longer.

The greenback strengthened against the euro after the ECB left interest rates unchanged, in line with expectations, and also posted gains versus both the yen and the pound.