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The dollar is sitting at 99 and it cannot make up its mind. PCE came in soft on Thursday, yields dropped, and the rate cut crowd got louder. Then Iran’s Revolutionary Guard targeted four American ships in the Strait of Hormuz and the safe haven bid came right back. Meanwhile the Fed just delivered its most fractured vote since October 1992 and the new Chair has not led a single meeting yet. Three forces pulling in three directions. The dollar is going nowhere fast.
The PCE Print Changed the Conversation
Thursday’s PCE number was the one everyone was waiting for. It came in softer than expected, continuing a disinflationary trend that has been grinding lower since mid-2025. The monthly reading took the edge off any argument for near-term rate hikes, and Treasury yields responded immediately by moving lower across the curve.
For the dollar, that should have been a clean bearish signal. Softer inflation means less pressure on the Fed to keep rates at 3.50-3.75%, which means the yield advantage that has been supporting the greenback starts to thin out. And on any normal week, that would have been enough to push DXY below 99 with some conviction.
This was not a normal week.
Four Ships in the Strait
Hours after the PCE print settled into screens, Iran’s Revolutionary Guard claimed it had targeted four American vessels attempting to transit the Strait of Hormuz. The US military confirmed it conducted self-defense strikes in southern Iran. Secretary of State Rubio said a final deal could still take several more days. Treasury Secretary Bessent said oil prices would end up lower than pre-conflict levels, which is an interesting thing to say when ships are being shot at.
Brent settled at $88.90, barely moving. Gold reversed its multi-session slide and closed up 0.88% near $4,497. The commodity currencies, Aussie, Kiwi and Loonie, posted the largest gains against the dollar on the day. That combination tells you something: the market is treating the Iran situation as noise rather than signal. Oil is not spiking. Gold is bid but not panicking. The safe haven flows into the dollar are not sticking.
A Fed That Cannot Agree With Itself
Here is the part that deserves more attention than it is getting. The April FOMC held rates at 3.50-3.75% on an 8-4 vote. That is the most dissents since 1992. Eight governors voted to hold while four pushed to move. The majority won, but four dissents at a central bank that prizes consensus is not business as usual. That is a committee fracturing in real time.
And then the leadership changed. Powell’s term as Chair ended on May 15. Kevin Warsh is expected to lead his first FOMC on June 16-17. No one knows what a Warsh-led Fed looks like in practice. The market is guessing hawkish, but guessing is not pricing. Until Warsh actually runs a meeting and delivers a statement, the dollar is trading on a leadership vacuum at the most important central bank in the world.
That vacuum is one of the reasons DXY is stuck. The PCE says cut. The Strait says hold. The Fed says we will let you know in three weeks when the new person has had a chance to sit in the chair.
Stocks Do Not Care
The S&P 500, Nasdaq and Dow all closed at record levels on Thursday. The S&P hit 7,563, the Dow crossed 50,668 and the Nasdaq pushed past 26,900. Dell surged 28% on an AI infrastructure outlook that caught the market off guard. Snowflake jumped 36.5% on a revenue beat. The equity market is pricing in cheaper oil, lower rates and no escalation. It is on track for its ninth consecutive weekly gain, the longest winning streak since 2023 and something that has only happened a handful of times in the past four decades.
That divergence between equities and the dollar is worth watching. On the same day stocks hit records, Q1 GDP was revised down from 2.0% to 1.6%. The economy is slowing. Stocks do not care. If the ceasefire holds, the dollar loses its safe haven bid and DXY drifts toward the low 90s by Q4. If the Strait stays closed, oil spikes, inflation re-accelerates, and the Fed has to hike into a leadership transition. Neither outcome is comfortable for anyone holding a large dollar position right now.
What I Am Watching Today
Fed speakers Bowman and Paulson are both on the calendar. Any signal on how the Warsh transition changes the rate calculus matters more than usual. German preliminary May inflation will tell us whether the ECB hike case is firming, which feeds directly into EUR/USD. And any fresh Iran headline over the weekend will set the tone for Monday.
The dollar at 99 is not a level. It is a question the market has not answered yet.
