Dollar holds firm as Middle East hostilities drive oil prices higher

The dollar index, currently at 99.67, remained stable on Wednesday as Middle East hostilities sparked a rise in oil prices and renewed inflation concerns. This safe-haven appeal was bolstered by climbing Treasury yields and expectations of a Federal Reserve rate hike, despite economic data falling short of expectations. The US initiated airstrikes against Iran on Tuesday, triggering Iranian retaliation and triggering the latest significant escalation in weeks.

Oil prices surged nearly 1% in early trade, with Brent futures climbing 0.92% to $95.52 a barrel and US West Texas Intermediate (WTI) CLc1 rising 0.89% to $91.02. Kumiko Ishikawa, a senior FX analyst at Sony Financial Group, emphasized the need for ongoing caution regarding Middle East developments. While recent US job openings and manufacturing data were below forecasts, markets now anticipate a 67% probability of a Federal Reserve rate hike in September, up from 40% a week prior, according to CME Group's FedWatch tool.