• US Dollar Index depreciates as market sentiment improves after Trump said the US will pause attacks on Iran’s energy sector.
• The US Dollar may rebound as inflation fears curb bets on Fed rate cuts, boosting hike expectations.
• Fed officials said that higher energy prices should impact inflation.

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, edges lower after three days of gains and is trading around 99.90 during the Asian hours on Friday.

The Greenback weakens on decreasing risk aversion after US President Donald Trump said Washington would pause attacks on Iran’s energy sector for 10 days at Tehran’s request, extending the April 6 deadline to allow more time for negotiations. However, the Wall Street Journal reported that mediators said Iran denied making such a request, underscoring fragile diplomacy and low odds of a near-term ceasefire.

The downside of the US Dollar could be restrained amid rising inflation concerns on the fading likelihood of further Federal Reserve (Fed) rate cuts and increased bets on a potential hike by year-end.

Federal Reserve (Fed) Vice Chair of Supervision Philip Jefferson said higher energy prices should have a modest impact on inflation, though a sustained shock could be more significant. Meanwhile, Fed Governor Michael Barr warned that another price shock could lift inflation expectations, reinforcing the case for the Fed to assess economic conditions before adjusting policy.

US Initial Jobless Claims came in exactly as expected at 210K on Thursday, offering little fresh direction. Attention now turns to Friday’s University of Michigan (UoM) consumer sentiment and one-year inflation expectations.

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