Dollar Slips as Easing Oil Prices and Fed Minutes Cool Rate Hike Fears

The U.S. dollar weakened on Thursday as a pullback in oil prices eased inflationary pressures and traders interpreted the latest Federal Reserve meeting minutes as less aggressive than some had anticipated.

The U.S. Dollar Index, which measures the greenback against a basket of six major currencies, was trading slightly lower 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 showed that while policymakers ultimately held rates steady, the debate over the future path of monetary policy was finely balanced. According to the release, "a few participants" believed there was a case for raising interest rates immediately.

However, the minutes also showed that "most" participants saw scenarios where inflation would cool on its own, while also acknowledging upside risks from strong demand or geopolitical events. Michael Feroli, chief U.S. economist at JPMorgan, noted that the minutes were "hawkish, but not surprisingly so considering the dot plot released three weeks ago."

Oil Prices and Geopolitics Drive Inflation Outlook

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Recent volatility in energy markets has been a key focus for investors assessing inflation. Crude oil prices retreated Thursday after President Donald Trump stated that Iran "wants to make a deal so badly," calming fears of a wider conflict that had pushed prices to three-week highs earlier in the week following U.S. military strikes.

Lower energy costs reduce the pressure on the Federal Reserve to pursue a more aggressive rate-hiking cycle. New York Fed President John Williams said Thursday he did not expect a sustained rise in energy prices this year. According to Thierry Wizman, a strategist at Macquarie, a continued moderation in oil prices could allow the Fed to "dial back the Fed’s hawkish tone."

Other Currency Movements

In other major currency pairs, the dollar's softness was evident, though moves were contained.

• The Japanese yen saw a rare day of strength, with the USD/JPY pair dipping 0.1% to 162.40. The yen, however, remains near a 40-year low against the dollar.
• The Chinese yuan firmed, with the USD/CNY pair declining 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 in four years, while consumer price inflation moderated to 1.0%.