Dollar Eases as Oil Retreats, Fed Minutes Show Divided Rate Outlook

The U.S. dollar slipped on Thursday as a retreat in oil prices eased inflationary pressures and investors digested minutes from the Federal Reserve's latest meeting, which indicated a divided view among policymakers on the path for interest rates.

By late afternoon, the U.S. dollar index, which measures the greenback against a basket of six major currencies, was trading slightly lower at 100.96, according to market data.

Fed Minutes Reveal Policy Division

Minutes from the Federal Open Market Committee’s (FOMC) June 16-17 meeting showed an evenly divided debate on the interest rate outlook. While a "few participants" made a case for an immediate rate increase, the committee ultimately held its policy rate steady.

According to the meeting summary, "most" participants pointed to scenarios where inflation could cool on its own, but also acknowledged risks that it could remain elevated. "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 and Inflation Outlook

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The dollar's trajectory was also influenced by volatility in the energy market. Crude oil prices, which had recently hit three-week highs amid geopolitical tensions, declined after President Donald Trump stated that Iran "want[s] to make a deal so badly." The comments followed fresh U.S. military strikes in the region.

Lower oil prices can reduce headline inflation, potentially giving the central bank more flexibility. Thierry Wizman, a strategist at Macquarie, suggested that if oil prices do not rise further, it could allow Fed Chair Kevin Warsh to "dial back the Fed’s hawkish tone." Adding to this sentiment, New York Fed President John Williams said Thursday he did not anticipate a sustained rise in energy prices for the remainder of the year.

Other Major Currencies

• Chinese Yuan: The 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, a four-year high, while the consumer price index (CPI) moderated to a 1.0% increase.
• Japanese Yen: The yen gained ground, with the USD/JPY pair declining 0.1% to 162.40. Despite the daily strength, the yen continues to trade near a 40-year low against the dollar, a level that has previously prompted intervention from Tokyo.