Dollar Slips as Falling Oil and Less Hawkish Fed Minutes Weigh on Sentiment

The U.S. dollar edged lower on Thursday as a pullback in oil prices eased inflation concerns, while traders digested Federal Reserve minutes that revealed a more divided outlook on interest rates than some investors had feared.

At 15:55 ET (19:55 GMT), the U.S. Dollar Index (DXY), which measures the greenback against a basket of six major currencies, was down slightly to 100.96, according to Investing.com data.

Fed Minutes Show Divided Policy Outlook

Minutes from the Federal Open Market Committee’s (FOMC) June 16-17 meeting, released Wednesday, showed that while "a few participants" saw a case for an immediate interest rate hike, the broader debate was more balanced. The record indicated that "most" participants saw scenarios where inflation would return to the Fed's 2% target on its own, but also acknowledged upside risks from strong demand or geopolitical conflict.

This division suggests a less unified hawkish front than the post-meeting dot plot had implied, contributing to the dollar's softer tone. Michael Feroli, chief U.S. economist at JPMorgan, characterized the minutes as "hawkish, but not surprisingly so," in a note on Wednesday.

Oil Prices Ease on De-escalation Hopes

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The dollar's move was also closely tied to energy markets. Oil prices retreated after President Donald Trump commented that Iran wants to make a deal "so badly," which traders interpreted as a sign of potential de-escalation. This followed a period of heightened tension where U.S. military strikes against Iranian targets prompted retaliation and pushed crude prices to three-week highs.

A sustained drop in oil prices would reduce inflationary pressures, giving the Federal Reserve more flexibility to delay further rate hikes. Underscoring this view, New York Fed President John Williams said Thursday he did not expect a sustained rise in energy prices for the remainder of the year.

Other Major Currency Movements

Against other major currencies, the dollar's performance was mixed:

• The Chinese yuan firmed 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 since July 2022, while the consumer price index (CPI) moderated to a 1.0% increase.
• The Japanese yen posted a rare gain, with the USD/JPY pair trading 0.1% lower at 162.40. Despite the day's strength, the yen remains near a 40-year low against the dollar and well above the 160 level that previously triggered intervention from Japanese authorities.