Dollar index holds near $101 as FOMC minutes, Iran risks collide

The US Dollar Index holds near $101 as traders weigh renewed US-Iran hostilities against the upcoming FOMC minutes release.

The US Dollar Index hovered near $101 on Wednesday, failing to rally on fresh US-Iran military strikes as traders judged the skirmishes as negotiating maneuvers rather than a return to all-out war. The DXY was rejected at 101.20 in early European trading before slipping back toward the 101.00 handle, turning negative on the day.

"The dollar's muted reaction reflects market conviction that neither side wants a full resumption of hostilities," said James Okafor, a macro analyst at Edgen. "The real catalyst this week is the FOMC minutes and what they reveal about the rate path."

The US military struck more than 80 targets in Iran early Wednesday in retaliation for alleged attacks on commercial vessels in the Strait of Hormuz, while Iran's Islamic Revolutionary Guard Corps said it targeted 85 US military sites in Kuwait and Bahrain. Despite the escalation, the DXY remained within its weekly range. On the 4-hour chart, the index is holding above its 50-period exponential moving average at $101.02, with the relative strength index near 52, according to price data compiled by FXEmpire. The .618 Fibonacci retracement level at $100.31 marks the next support after the breakout from the $97.67 swing low, with the volume profile showing a pivot cluster between $100.59 and $101.06.

The Federal Reserve's June meeting minutes, due at 18:00 GMT, represent the primary risk event for the dollar. Chair Kevin Warsh struck an unexpectedly hawkish tone at his first monetary policy meeting, reinforcing expectations that the central bank will raise rates at least once this year. The fed funds rate currently stands at 5.25% to 5.50%, unchanged since July 2023. OIS markets are pricing a 62% probability of a hold at the next meeting, with the hawkish tilt from June shifting rate expectations higher. If the minutes confirm a unified hawkish stance, the DXY could target $103.09, the next upside objective based on the .618 Fib extension. A dovish surprise would likely push the index back toward the $100.31 support.

Policy divergence drives cross-asset dynamics

The dollar's resilience also reflects widening policy divergence among major central banks. Core inflation has remained elevated in the US, keeping the Fed disinclined to ease in the near term, according to FXEmpire analysis. The euro is hampered by heterogeneous growth across the euro zone as the European Central Bank works to anchor inflation expectations, while sterling remains caught between sticky services inflation and weakening growth as the Bank of England weighs labor market data against fiscal constraints. EUR/USD held support at $1.1418 on Wednesday, defending its 50-period EMA, while GBP/USD tested resistance at $1.3360 before retreating.

What the FOMC minutes could reveal

The last time the Fed delivered a hawkish hold with comparable language was in June 2024, which preceded a 50-basis-point widening in 2-year yields over the following month and a 3% decline in the S&P 500. A repeat scenario this time would likely strengthen the dollar further, compressing risk assets and pushing EUR/USD toward the $1.1300 area. Conversely, if the minutes reveal internal dissent or a more balanced discussion around the risks of overtightening, the dollar could give back its recent gains, with the DXY testing the $100.59 breakout pivot identified on the volume profile. The next FOMC meeting is scheduled for late July, giving markets a two-week window to position around whatever signal the minutes provide.

This article is for informational purposes only and does not constitute investment advice.