Rising Middle East tensions and sticky inflation expectations lift September Fed rate hike odds to 51%, pressuring the USD.
The US Dollar Index (DXY) retreated to 101.20 in Asian trading Tuesday, reversing two days of gains. Safe-haven demand surged after US strikes on Iranian targets and Iran’s disabling of two supertankers in the Strait of Hormuz, disrupting a key oil transit route.
Oil prices rose sharply, fueling concerns over energy-driven inflation. Markets now price a 51% chance of a Fed rate hike in September, up from 23% for a pause. Traders await June’s US CPI data, with headline inflation expected to dip 0.1% month-on-month while core inflation rises 0.3%.
Fed Chair Kevin Warsh’s congressional testimony later Tuesday will be scrutinized for policy clues amid shifting rate expectations.