US Dollar Index rises above 99.00 as Middle East tensions drive inflation fears

• US Dollar strengthens as rising Middle East energy prices fuel inflation fears, reducing bets on near-term policy easing.
• President Trump warned escalation could bring equally hardline Iranian leadership, highlighting uncertainty over the conflict’s outcome.
• Israel reportedly struck a building where Iranian clerics were meeting to select a new Supreme Leader.

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, extends gains for the third consecutive day, trading around 99.20 during the Asian hours on Wednesday. Attention now turns to the US ISM Services Purchasing Managers’ Index (PMI), due later in the day.

The Greenback advances on fading expectations of imminent rate cuts from the Federal Reserve (Fed). The yield on the US 10-year Treasury note holds around 4.06% at the time of writing after rising for two consecutive sessions amid elevated inflation fears.

Higher energy prices due to escalating tensions in the Middle East have added to inflation concerns, prompting markets to scale back bets on near-term policy easing. Investors largely expect the US central bank to keep interest rates unchanged until summer, despite calls from US President Donald Trump for lower borrowing costs.

The US Dollar also receives support from safe-haven demand due to the ongoing Middle East war. US President Donald Trump warned that the escalation could pave the way for an equally hardline leadership in Iran, underscoring uncertainty surrounding the conflict’s outcome.

Israel reportedly hit a building where Iranian clerics were meeting to choose a new Supreme Leader. Israeli forces also launched a new ground operation in southern Lebanon targeting Hezbollah, alongside increased airstrikes.