US Dollar Index Reaches Highest Level Since November

The US dollar rose across the board on March 13, marking a second consecutive weekly gain, as investors sought safe-haven assets amidst the escalating conflict in the Middle East. The dollar index, which measures the greenback's strength against a basket of currencies, surged 0.7% to 100.35, its highest level since November.

Energy-sensitive currencies, including the euro, felt the brunt of the war's impact, with the euro falling 0.6% against the dollar to $1.14395. The dollar index has risen 1.5% for the week, driven by investors' increasing preference for safe-haven assets.

US Consumer Spending and Inflation Data

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Data released on March 13 showed that US consumer spending increased slightly more than expected in January, bolstering economists' views that the Federal Reserve will not resume cutting interest rates in the near future. Core PCE inflation also remained firm, further supporting the notion that the Fed will maintain its current monetary policy stance.

Market Expectations

Traders are now betting that the Federal Reserve will cut interest rates by September, as the war in the Middle East continues to weigh on the global economy. However, economists remain cautious, warning that the Fed may not cut rates at all in 2026 and may even consider rate hikes later this year.

European Central Bank and Euro

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The European Central Bank is expected to meet next Thursday, with investors awaiting its policy decisions. Traders are betting that surging oil prices could push the ECB to hike rates this year, despite concerns about the impact on growth in economies heavily reliant on fuel imports.

Yen and Intervention

The Japanese yen fell to its weakest level since July 2024, with the dollar rising 0.2% to 159.67 yen. Japan's Finance Minister, Satsuki Katayama, has warned that policymakers may take steps to intervene in the foreign exchange market to prevent further yen weakness, which could exacerbate already soaring import bills.