According to APP, the US Dollar Index ( DXY ), which measures the dollar against six major currencies, retreated after rising nearly 0.75% in the previous trading session, hovering around 100.10 during Thursday's Asian trading session. However, the greenback may still regain momentum as the Federal Reserve's policy outlook has turned more hawkish.

The Federal Reserve kept interest rates unchanged at 3.50%-3.75% at its March meeting. Chairman Jerome Powell recently clarified regarding inflation and geopolitical themes that while inflation is expected to gradually moderate, the pace of deflatoring may be slower than previously anticipated. He also emphasized that rising oil prices related to the conflict with Iran are likely to further push up inflation in the short term. The Fed acknowledged the uncertainty surrounding the economic impact of the Iran war but warned of significant upside risks to inflation. Policymakers stated that they would only begin cutting interest rates upon seeing clearer evidence of inflation easing; however, the dot plot still projects one rate cut this year and another in 2027, consistent with the December outlook.

Data released Wednesday showed that the U.S. producer price index (PPI) rose more than expected in February, reinforcing the signal that inflationary pressures extend beyond the energy sector. The U.S. PPI rose 0.7% month-over-month, higher than January's 0.5% and market expectations of 0.3%, marking the largest increase in seven months. Year-over-year, the overall PPI rose to 3.4%, reaching a one-year high, a significant acceleration from January's 2.9% and the expected flat reading. The core PPI also accelerated year-over-year to 3.9% from 3.5%. Investors are now turning to weekly initial jobless claims data for further analysis of the labor market situation.

Latest market pricing indicates that expectations for the Federal Reserve to cut interest rates this year have shrunk from two to one, with the probability of a June rate cut falling to less than 40%. The conflict in Iran, coupled with tight global energy supplies, has directly pushed up the cost of imported oil and gas, becoming a major cause of persistent inflation. This puts the Federal Reserve in a dilemma: it must address the risk of rising inflation while avoiding premature tightening that could stifle economic growth. Analysts reasonably speculate that if oil prices remain high until the second quarter, the decline in core inflation will slow further, and the US dollar is expected to bottom out and rebound above the 100 level.

The ripple effects of this event on the US dollar and the global economy warrant attention. Rising oil prices amplify business costs through imports, which in turn impacts consumption. A resilient labor market will support the Federal Reserve maintaining higher interest rates for an extended period. At the corporate level, persistently high financing costs may dampen investment expansion; at the household level, limited real income growth will drag down consumption. Investors should be wary that if the situation in Iran eases and energy prices fall, downward pressure on the US dollar will re-emerge.

To visually illustrate the differences in the data, the following is a comparison table of key indicators of the latest Producer Price Index:

Editor's Summary : The energy shock triggered by the Iranian conflict is deeply embedded in the Federal Reserve's decision-making framework. Upward inflation risks are forcing a postponement of interest rate cuts, and the dollar's short-term support remains. Long-term trends still depend on the evolution of the conflict, the speed of energy price declines, and employment data. Market participants should continue to monitor the Fed meeting minutes, PPI and CPI data, and geopolitical developments to proactively hedge against exchange rate and interest rate risks.
Frequently Asked Questions
1. Why has the US dollar index fallen back to 100.10 but may still rebound?
After a nearly 0.75% gain in the previous trading day, profit-taking emerged, putting temporary pressure on the dollar during the Asian session. However, hawkish comments from the Federal Reserve—especially Powell's emphasis on the Iranian conflict driving up oil prices and inflation—reinforced expectations of a delayed rate cut, attracting buying interest and supporting the dollar's stabilization near the 100 level.

2. What are the core considerations behind the Federal Reserve's decision to maintain interest rates at 3.50%-3.75%?
Although inflation is expected to gradually decline, the pace of deflatoring is slower than anticipated, and the risk of rising oil prices due to the Iran war makes policymakers reluctant to ease monetary policy prematurely. The dot plot retains one rate cut this year, indicating that policy space remains, but clear evidence of easing is needed before action can be taken to avoid repeating past mistakes of runaway inflation.

3. What does the unexpectedly rapid acceleration of the producer price index in February mean?
The month-on-month increase of 0.7% far exceeded the expected 0.3%, and the year-on-year increase rose to a one-year high of 3.4%, with core indicators also accelerating to 3.9%, indicating that inflationary pressures have spread to non-energy sectors. This validates Powell's assessment of the transmission effects of the Iranian conflict, further delaying the market's pricing in a Fed rate cut.

4. How will the conflict in Iran affect the Federal Reserve's policy path?
The conflict has driven up global oil and gas prices, directly amplifying import costs and supply-side inflation. The Federal Reserve acknowledged economic uncertainty but emphasized the upside risks to inflation, leading to a reduction in the expected number of rate cuts this year to one. This provides additional support for the dollar, while simultaneously testing corporate cost control and household real income.