Dollar Eases as Falling Oil Prices and Divided Fed Minutes Temper Rate Hike Fears

The U.S. dollar edged lower on Thursday as falling oil prices eased inflation fears and traders assessed Federal Reserve minutes that revealed a divided committee on the path of interest rates. The U.S. Dollar Index (DXY), which measures the greenback against a basket of six major currencies, was down slightly to 100.96 in late afternoon trading, according to Investing.com data.

Fed Minutes Show Divided Policy Outlook

Minutes from the Federal Open Market Committee’s (FOMC) June 16-17 meeting showed a nuanced debate among policymakers. While the committee ultimately held its policy rate steady, "a few participants" indicated there was a case for an immediate rate increase, the meeting summary revealed.

However, the broader discussion appeared "equally divided," with "most" participants also seeing scenarios where inflation would cool on its own. This was perceived by markets as less hawkish than the updated "dot plot" from the same meeting, which had signaled a greater appetite for rate hikes amid concerns over surging oil prices at the time.

"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 client note.

Oil Prices and Geopolitics Influence Inflation Bets

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A key factor weighing on the dollar was a decline in oil prices, which retreated from three-week highs. The drop came after U.S. President Donald Trump told reporters that Iran "want[s] to make a deal so badly," easing fears of a wider conflict that could disrupt supply following recent military strikes between the two nations.

The decline in crude prices tempered market expectations for persistent inflation, a central concern for the Fed. 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. According to Thierry Wizman, global FX and rates strategist at Macquarie, the path of oil prices may influence the timing of the next potential rate hike, determining whether it occurs in September or October.

Other Major Currency Movements

Against other major currencies, the dollar saw mixed but generally weaker performance:

• Chinese Yuan: The yuan firmed, with the USD/CNY pair falling 0.1% to 6.7921. The move came after data showed China's producer price index (PPI) rose 4.1% year-over-year in June, its fastest pace since July 2022, while consumer price inflation (CPI) moderated to 1.0%.
• Japanese Yen: The yen gained slightly, with the USD/JPY pair down 0.1% to 162.40. Despite the daily strength, the yen remains near a 40-year low against the greenback.