FX.co ★ Dollar Little Changed, Middle East Situation in Focus

The dollar index hovered around 100.9 on Friday and was set to finish the week largely flat, as investors continued to weigh the fragile and uncertain situation in the Middle East. Oil prices retreated after an earlier surge this week, following reports that the US and Iran would resume peace negotiations. Still, renewed exchanges of strikes between the two sides reignited worries that the conflict could intensify, with the status of the previous truce still unclear. The flare-up also revived concerns about a fresh bout of inflationary pressures, bolstering expectations that the Federal Reserve may need to tighten monetary policy further. Futures markets now imply a 62% probability of a Fed rate hike in September, up from 58% a week earlier but down from roughly 70% at the peak this week. Meanwhile, New York Fed President John Williams noted that, among the forces currently driving US inflation, he is most concerned about demand fueled by advances in artificial intelligence.