Dollar Eases as Falling Oil and Less-Hawkish Fed Minutes Cool Rate Hike Bets

The U.S. dollar edged lower on Thursday as falling oil prices tempered inflation concerns and traders reassessed the Federal Reserve's policy path after meeting minutes proved less aggressive than some had feared. The U.S. dollar index (DXY), which measures the greenback against a basket of six major currencies, was trading slightly down at 100.96.

Fed Minutes Reveal a Divided Committee

Minutes from the Federal Open Market Committee’s (FOMC) June 16-17 meeting, released Wednesday, showed a more nuanced debate than the post-meeting dot plot had suggested. While a "few participants" argued for an immediate interest rate increase, the broader committee appeared evenly divided on the economic outlook.

The record showed that "most" participants saw scenarios where inflation would cool on its own, but also acknowledged risks that it could remain elevated due to factors like AI-related demand or geopolitical conflict. "The minutes to the June 16-17 FOMC meeting were hawkish, but not surprisingly so considering the dot plot released three weeks ago," noted Michael Feroli, chief U.S. economist at JPMorgan, in a Wednesday report.

Oil Prices Retreat on Diplomatic Hopes

The dollar's weakness was amplified by a drop in crude oil prices, which retreated from three-week highs. The decline followed comments from President Donald Trump suggesting Iran wants to "make a deal so badly," easing fears of a wider conflict after recent U.S. military strikes and Iranian retaliation.

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Lower energy costs reduce headline inflation, potentially giving the Federal Reserve more flexibility on the timing of future rate hikes. According to Thierry Wizman, global FX and rates strategist at Macquarie, oil price movements could determine "whether the next rate hike comes in September or October." Adding to this sentiment, New York Fed President John Williams said Thursday he did not expect a sustained rise in energy prices for the rest of the year.

Global Currency Snapshot

Elsewhere in currency markets, other major pairs reacted to domestic data and the dollar's broader move:

• The Chinese yuan firmed against the dollar, with USD/CNY falling 0.1% to 6.7921. The move came after data showed China's producer price index (PPI) hit a four-year high of 4.1% year-over-year in June, while consumer price inflation (CPI) moderated to 1.0%.
• The Japanese yen gained ground, with USD/JPY slipping 0.1% to 162.40. However, the yen remains near a 40-year low against the dollar, keeping the possibility of intervention from Tokyo in focus.