US Dollar Index holds firm as US-Iran tensions persist and Fed rate cut bets fade

• US Dollar Index holds firm as US-Iran tensions keep the Greenback supported.
• Oil-driven inflation lifts yields as traders scale back Fed rate cut expectations.
• Steady Jobless Claims data offer little new impetus for the US Dollar.

The US Dollar Index (DXY), which measures the Greenback’s value against a basket of six major currencies, holds firm on Thursday as the US Dollar remains well supported amid ongoing geopolitical tensions surrounding the US-Israel war with Iran.

At the time of writing, the index trades near 99.75, remaining on the front foot for a third consecutive day.

Uncertainty around US-Iran talks continues after Iran rejected a proposed 15-point plan from Washington, saying any deal must be on its own terms. Tehran outlined key conditions, including a halt to hostilities, guarantees against renewed conflict, war reparations, a broader ceasefire, and recognition of its authority over the Strait of Hormuz, state-linked media Press TV reported on Wednesday.

While the United States maintains that talks with Iranian negotiators are ongoing, Iranian officials have publicly denied that any negotiations are taking place. At the same time, reports of additional US military deployments to the region are keeping the risk of a prolonged conflict elevated.

Separately, Axios reported on Thursday that US officials are evaluating several military options targeting key Iranian positions, including areas such as Kharg Island, Iran’s main oil export hub, and strategic locations around the Strait of Hormuz, including Larak Island and Abu Musa.

Against this backdrop, the US Dollar continues to gain traction. Rising Oil prices are fueling inflation concerns, prompting traders to scale back expectations for Federal Reserve (Fed) interest rate cuts, which have pushed US Treasury yields higher. As Oil is priced in USD, higher prices also tend to support demand for the Greenback.

Markets now expect the Fed to keep rates on hold through 2026, rather than earlier expectations for at least two cuts. However, a Reuters poll published on Thursday showed that 61 of 82 economists expect the Fed to leave rates unchanged in the next quarter.

Looking further ahead, economists are broadly split on the outlook for end-2026, with 28 expecting one rate cut and 37 anticipating two cuts.

On the data front, US Initial Jobless Claims came in at 210K for the latest week, in line with expectations but slightly higher than the previous reading of 205K. Meanwhile, the four-week average dipped slightly to 210.5K from 210.75K.