Dollar Slips After Fed Minutes as Iran Tensions, Inflation Risks Keep Markets Cautious

The U.S. dollar edged lower on Thursday after the Federal Reserve’s June meeting minutes appeared less hawkish than investors had anticipated, although escalating geopolitical tensions in the Middle East limited the currency’s losses.

The U.S. Dollar Index slipped 0.1% following a volatile overnight session. While renewed U.S. military action against Iran initially boosted demand for the safe-haven greenback, sentiment shifted after the Fed minutes revealed policymakers were divided over the need for additional interest rate hikes. Even so, the dollar remained close to its recent 13-month highs as inflation concerns continued to dominate the outlook.

Fed officials highlighted persistent inflation risks, reinforcing expectations that interest rates could remain elevated if price pressures fail to ease. Those concerns intensified after oil prices climbed sharply this week following U.S. strikes on Iran. President Donald Trump also stated that a ceasefire with Iran had ended, adding to uncertainty in global financial markets.

In Asia, the Chinese yuan strengthened modestly, with the USD/CNY pair falling about 0.1% after mixed June inflation data. China’s consumer price index rose 1.0% year-over-year, below the expected 1.1% and slower than May’s 1.2%, signaling continued softness in consumer demand. However, producer price inflation accelerated to a four-year high of 4.1% as higher energy and commodity costs, driven by Middle East supply disruptions, pushed up input prices.

Analysts at ING said China’s inflation remains low enough to allow the People’s Bank of China to ease monetary policy if necessary, although lower interest rates could weigh on the yuan. Even so, the bank expects only limited downside for the Chinese currency in the coming months.

Elsewhere, the Japanese yen remained under pressure, with USD/JPY hovering near its weakest level in roughly four decades despite a slight decline on the day. Traders continued to monitor the risk of intervention after repeated warnings from Japanese officials. The euro and British pound each gained around 0.2% against the dollar, while the Australian dollar edged higher and South Korea’s won traded little changed amid ongoing volatility in regional equity markets.