The dollar index reached a one-week high today, rising by 0.05% as safe-haven demand surged amid escalating conflict between Iran and Israel, which has now entered its 27th day. This situation contributed to a 3% increase in crude oil prices, raising inflation expectations and strengthening the case for the Federal Reserve to maintain a restrictive monetary policy. The University of Michigan’s consumer sentiment index for March was revised down to 53.3 from 55.5, underperforming expectations of 54.0.
In Middle Eastern developments, Iran’s missile fire targeting several Gulf states prompted Saudi Arabia to intercept two ballistic missiles aimed at Riyadh. Additionally, the Pentagon is contemplating deploying up to 10,000 more troops to the region to address the escalating situation. Markets are currently pricing in a 4% chance of a rate hike by the Federal Reserve in its April meeting.
Meanwhile, the euro also showed slight gains today, buoyed by comments from ECB Governing Council member Pierre Wunsch, who did not rule out an interest rate increase in April. However, the euro weakened earlier in the day due to a drop in ECB inflation expectations to 2.5% from 2.6%, complicating the outlook for European monetary policy.
