Dollar Slips as Easing Oil Prices and Divided Fed Minutes Temper Rate Hike Bets

The U.S. dollar edged lower against a basket of major currencies on Thursday as falling oil prices eased inflation concerns and traders digested Federal Reserve minutes that were less hawkish than some had anticipated. The U.S. dollar index (DXY), which measures the greenback against six peers, traded slightly down at 100.96 in late afternoon trading.

Fed Minutes Reveal Divided Committee

Minutes from the Federal Open Market Committee’s (FOMC) June 16-17 meeting, released Wednesday, showed a more divided view on the interest rate outlook than the committee's official projections had suggested. While the FOMC ultimately held its policy rate steady, the minutes noted an "evenly divided debate" among policymakers.

According to the record, "a few participants" argued for an immediate rate increase, but "most" also saw scenarios where inflation could return to the Fed's 2% target without further intervention. This nuance tempered expectations of an aggressively unified hawkish stance, weighing on the dollar. "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 Retreat on Diplomatic Hopes

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A key driver of the dollar's move was a decline in crude oil prices, which retreated from three-week highs. The drop came after President Donald Trump told reporters that Iran wants to make a deal "so badly," signaling a potential de-escalation of recent military conflict in the Middle East. The comments followed a series of U.S. strikes on Iranian targets and retaliatory actions from Tehran earlier in the week that had pushed oil prices higher.

Lower energy costs reduce headline inflation, potentially giving the Federal Reserve more flexibility on the timing of future rate hikes. New York Fed President John Williams said Thursday he did not expect a sustained rise in energy prices. Thierry Wizman, a strategist at Macquarie, suggested that if oil prices do not spike again, it could allow the Fed to "dial back the Fed’s hawkish tone," potentially pushing the next rate hike from September to October.

Other Major Currencies

• Chinese Yuan: The yuan strengthened against the dollar, 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 highest rate in four years, while consumer price inflation (CPI) moderated to 1.0%.
• Japanese Yen: The yen posted a rare gain, with the USD/JPY pair dipping 0.1% to 162.40. Despite the daily strength, the yen remains near a 40-year low against the U.S. dollar.