Dollar Slips as Oil Retreats, Fed Minutes Seen as Less Hawkish

The U.S. dollar edged lower against a basket of major currencies on Thursday, pressured by a retreat in oil prices and a less aggressive-than-feared tone from the Federal Reserve's latest policy meeting minutes. The decline in crude eased investor concerns about persistent inflation, reducing the perceived urgency for the central bank to raise interest rates.

By late afternoon, the U.S. Dollar Index (DXY), which measures the greenback against six peers, was trading slightly lower at 100.96.

Fed's Divided Stance Comes Into Focus

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 over future policy was nuanced. Although "a few participants" saw a case for an immediate rate hike, the broader discussion appeared more balanced.

According to the minutes, "most" participants noted scenarios where inflation could moderate 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.

Adding to the sentiment, New York Fed President John Williams said Thursday he did not anticipate a sustained increase in energy prices through the rest of the year, despite recent geopolitical flare-ups.

Oil Prices Cool on Diplomatic Hopes

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The dollar's move was closely tied to volatility in the energy market. Oil prices fell after U.S. President Donald Trump commented that Iran wants to make a deal "so badly," which traders interpreted as a sign of potential de-escalation. The remarks came after the U.S. launched retaliatory strikes against approximately 170 targets in Iran earlier in the week.

Market strategists noted the direct link between energy costs and monetary policy. "If oil prices do not rise further... the Fed’s Kevin Warsh will be able to dial back the Fed’s hawkish tone," said Thierry Wizman, a global FX and rates strategist at Macquarie. He added that the path of oil prices could determine whether the next rate hike occurs in September or October.

Yuan and Yen Gain Ground

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 mixed inflation data showed China's producer price index (PPI) hit a four-year high of 4.1% in June, while consumer price index (CPI) inflation moderated to 1.0%.
• The Japanese yen saw a rare day of strength, with the USD/JPY pair declining 0.1% to 162.40. Despite the daily gain, the yen remains near a 40-year low against the dollar and above the 160 level that previously triggered intervention from Tokyo.