US Dollar Slips as Oil Retreats, Fed Minutes Show Divided Committee

The U.S. dollar weakened against a basket of major currencies on Thursday, pressured by falling oil prices and a less hawkish-than-expected tone from the Federal Reserve's latest policy meeting minutes. The U.S. dollar index, which measures the greenback against six peers, traded slightly lower at 100.96 in afternoon trading.

Fed Minutes Reveal Divided Outlook

Minutes from the Federal Open Market Committee’s (FOMC) June 16-17 meeting, released Wednesday, showed a nuanced debate among policymakers. While the committee ultimately held its policy rate steady, the minutes revealed that "a few participants" saw a case for an immediate rate hike.

However, the broader discussion appeared evenly split. The minutes noted "most" participants saw scenarios where inflation would cool on its own, while "most" also acknowledged risks that inflation could stay elevated due to factors like strong AI-related demand or geopolitical conflict. This division suggested a less unified hawkish front than the meeting's updated "dot plot" had previously implied.

"The minutes to the June 16-17 FOMC meeting were hawkish, but not surprisingly so considering the dot plot released three weeks ago," said Michael Feroli, chief U.S. economist at JPMorgan, in a note on Wednesday.

Oil Prices and Geopolitics

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A key driver of market sentiment was a decline in crude oil prices, which eased investor concerns about inflation. Prices fell after President Donald Trump commented that Iran wanted to "make a deal so badly," calming fears of a wider conflict following recent U.S. military strikes against Iranian targets.

Analysts noted the strong link between energy costs and monetary policy. "We suspect... that if oil prices do not rise further between now and next week, the Fed’s Kevin Warsh will be able to dial back the Fed’s hawkish tone," said Thierry Wizman, global FX and rates strategist at Macquarie. Adding to this sentiment, New York Fed President John Williams said Thursday he did not expect a sustained rise in energy prices for the rest of the year.

Moves in Asian Currencies

Elsewhere, 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 fastest pace since July 2022, while consumer price inflation (CPI) moderated to 1.0%.

The Japanese yen also posted a rare gain, with the USD/JPY pair declining 0.1% to 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 prompted intervention from Tokyo.