Dollar Eases as Oil Prices Retreat and Fed Minutes Show Divided Rate Outlook

The U.S. dollar edged lower on Thursday, influenced by falling oil prices that eased inflation fears and Federal Reserve meeting minutes that pointed to a more divided outlook on interest rates than some investors had expected. By late afternoon, the U.S. Dollar Index (DXY), which measures the greenback against a basket of six major currencies, was down slightly to 100.96.

Fed Minutes Reveal Divided Stance

Minutes from the Federal Open Market Committee’s (FOMC) June 16-17 meeting, released Wednesday, showed that while policymakers ultimately held rates steady, the debate was nuanced. The minutes noted that "a few participants" saw a case for an immediate rate hike, but the broader discussion appeared evenly split.

According to the summary, "most" participants envisioned scenarios where inflation would cool on its own toward the Fed's 2% target. However, "most" also acknowledged risks that inflation could stay elevated due to factors like strong AI-related demand or geopolitical conflict. This followed the meeting's updated "dot plot," which had signaled a hawkish tilt among policymakers.

"The minutes to the June 16-17 FOMC meeting were hawkish, but not surprisingly so considering the dot plot released three weeks ago," said Michael Feroli, chief U.S. economist at JPMorgan, in a note on Wednesday.

Oil Prices Swing on Geopolitical Signals

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A key driver of market sentiment was the price of crude oil, which retreated after a recent spike. Prices had risen earlier in the week amid an escalation in conflict between the U.S. and Iran, which saw the U.S. military launch strikes against approximately 170 targets in Iran following attacks on commercial oil tankers.

However, oil prices fell Thursday after President Donald Trump, while stating a ceasefire was "over," also told reporters that Iran wanted to make a deal "so badly." Traders interpreted these comments as a potential de-escalation, reducing the risk of a wider conflict that could disrupt oil supply. Adding to the sentiment, New York Fed President John Williams said Thursday he did not expect a sustained rise in energy prices.

Currency Market Snapshot

In other major currency movements, the Chinese yuan firmed against the dollar, with the USD/CNY pair falling 0.1% to 6.7921. The move came after government data showed China's producer price index (PPI) rose 4.1% year-over-year in June, its highest since July 2022, while consumer price inflation (CPI) moderated to 1.0%.

The Japanese yen also posted a rare gain against the dollar, with the USD/JPY pair declining 0.1% to 162.40. Despite the daily strength, the yen remains near a 40-year low against the greenback and well above the 160 level that previously prompted intervention from Tokyo.