US Dollar Index advances to near 100.00 due to strengthening Fed hawkish stance
- US Dollar Index gains on rising safe-haven demand amid escalating Middle East tensions.
- Washington is considering a ground move to seize Iran’s Kharg Island, a crucial oil export hub.
- Higher oil prices are driving inflation concerns and strengthening the Fed's hawkish stance.
The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, extends its gains for the second successive session and is trading around 99.80 during the early European hours on Monday.
The Greenback strengthens on heightened safe-haven demand as Middle East tensions intensify. US President Donald Trump has reportedly given Iran a 48-hour deadline to reopen the Strait of Hormuz or face possible strikes on its energy infrastructure. Reports also indicate Washington is weighing a ground operation to take control of Iran’s Kharg Island, a major oil export hub.
Iran’s Islamic Revolutionary Guard Corps (IRGC) warned it would shut the strait completely if the US acts, while Tehran threatened to target US and Israeli assets across the region, including energy, IT, and desalination facilities.
The US Dollar is further supported by rising oil prices, which are fueling inflation concerns and reinforcing the Federal Reserve’s (Fed) hawkish stance. Markets are increasingly pricing in the possibility of a Fed rate hike toward year-end.
At its March meeting, the Fed voted 11–1 to keep interest rates unchanged within the 3.50%–3.75% range, marking a second straight hold after a series of cuts in late 2025. Meanwhile, futures markets indicate an 85.5% probability that rates will remain unchanged at the April meeting, according to the CME FedWatch tool.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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