The dollar index advanced toward 99.5 on Thursday, marking a third consecutive session of gains as a renewed rally in oil prices intensified inflation risks and further dimmed prospects for Federal Reserve interest rate cuts. Crude prices rose for a second straight day, with fears of a prolonged war involving Iran outweighing the impact of a coordinated strategic stockpile release by major economies; the IEA approved its largest-ever drawdown of 400 million barrels. Supply concerns were compounded after Iraq suspended operations at its oil terminals following attacks on two oil tankers in its territorial waters, underscoring heightened regional supply risks.
On the data front, February inflation matched expectations, with CPI remaining stable but still above the Fed’s target. However, the latest figures do not yet fully capture the inflationary impact of the recent energy price surge linked to the conflict. The Fed is widely expected to leave the federal funds rate unchanged at next week’s meeting, while futures markets are pricing in just one 25-basis-point cut this year, most likely in September.