The dollar index (DXY00) rose by +0.61% on Tuesday and posted a 3.25-month high. The dollar extended Monday’s rally on Tuesday after oil prices soared to an 8.5-month high, boosting inflation expectations and reducing the chance of additional Fed rate cuts, a supportive factor for the dollar. Market expectations for Fed easing have fallen, with money markets now pricing 37 bp of Fed rate cuts this year, down from 60 bp last Friday. In addition, Tuesday’s stock slump has boosted liquidity demand for the dollar.
NY Fed President John Williams said additional Fed interest rate cuts will be warranted if inflation slows further once most of the impact of tariffs has passed.
