United States Dollar Index declines despite increased safe-haven demand

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, is holding losses after registering minor gains in the previous day and trading around 100.00 during the Asian hours on Thursday.

The Greenback struggles as traders assess the uncertainty surrounding the Middle East conflict. Following an incident where an American helicopter was shot down, the US launched "self-defense" strikes, triggering Iranian retaliatory attacks on US military facilities in Bahrain, Jordan, and Kuwait.

In response to what it termed "unwarranted and continued aggression," US Central Command (CENTCOM) confirmed that the US began airstrikes in Iran on Wednesday. Furthermore, President Donald Trump warned of severe military action if an interim peace deal is not finalized, accusing Tehran of stalling. Iranian officials, however, maintain they will not back down.

Adding to the crisis, the Islamic Revolutionary Guard Corps (IRGC) announced an immediate, total closure of the Strait of Hormuz to all commercial and oil vessels, warning that any transit attempts would be targeted. This disruption has sent oil prices surging, reviving inflation fears and altering Federal Reserve (Fed) interest rate expectations. Money markets are now pricing in 25 basis points of tightening, pointing toward a potential Fed rate hike by year-end.

On the economic front, May’s US CPI matched forecasts, rising to 4.2% YoY (up from 3.8% in April), while Core CPI ticked up to 2.9% YoY from 2.8%. Market attention now shifts to the upcoming release of the May Producer Price Index (PPI) and Initial Jobless Claims later today.