The dollar index (DXY00) is up +0.17% on support from today’s +4.7 bp rise in the 10-year T-note yield, which supported the dollar’s interest rate differentials. Also, today’s +4% rally in WTI crude oil prices is hawkish for Fed policy and supportive of the dollar.
Today’s US CPI report was in line with market expectations and roughly neutral for the dollar. The Feb CPI rose +0.3% m/m and +2.4% y/y, while the Feb core CPI rose +0.2% m/m and +2.5% y/y. Today’s headline CPI report of +2.4% y/y was just 0.1 point above the 5-year low posted in April 2025, while today’s core CPI of +2.5% y/y matched the 5-year low posted in the two previous months. Even though the CPI figures are at or near 5-year lows, they are still above the Fed’s target of +2%. Moreover, inflation pressures will worsen in the coming months due to the recent spike in oil and fuel prices caused by the war in Iran.
WTI oil prices are up about +4% today as the oil market volatility continues. WTI oil prices spiked up to a 3.75-year high of $119.48 on Monday after Israel bombed 30 fuel depots in Iran, but have since fallen back to the $86 per barrel area after President Trump claimed the Iran war would be over “very soon.” In addition, the IEA today proposed a huge 400 million-barrel release by the G-7 nations, much larger than the 182 million-barrel release in 2022 following Russia’s invasion of Ukraine. An oil release could be approved by G-7 leaders later today during a remote meeting. The release is designed to replace the oil lost due to the Strait of Hormuz shutdown and the subsequent production cuts by Persian Gulf oil producers, although it will take some time for the oil stockpiles to reach the market.
Swaps markets are discounting the odds at 4% for a -25 bp rate cut at the next FOMC policy meeting on March 17-18.
The dollar continues to be undercut by a poor outlook for interest rate differentials, with the FOMC expected to cut interest rates by at least -25 bp in 2026, while the BOJ and ECB are expected to raise rates by at least +25 bp in 2026.
EUR/USD (^EURUSD) is down -0.19% on dollar strength. Also, the euro is being undercut by today’s rally in WTI crude oil, which is negative for the Eurozone economy.
