Investors shift focus to potential de-escalation in Iran-Israel tensions, reducing demand for the safe-haven dollar ahead of key U.S. inflation data.
The U.S. dollar declined on Tuesday as optimism over a potential truce between Iran and Israel overshadowed expectations of higher U.S. interest rates. Geopolitical risks had previously driven demand for the dollar, but signs of easing tensions weighed on the currency against the euro and yen.
U.S. Treasury yields rose last week after stronger-than-expected May jobs data fueled speculation of a Federal Reserve rate hike later this year. Traders now see a 70% chance of a December rate increase, according to CME FedWatch, with Wednesday’s inflation data likely to provide further direction.
Iran and Israel announced a pause in hostilities following U.S. intervention, though Tehran warned it could resume attacks if Israel targets Hezbollah. Markets remain cautious as the fragile truce may not hold, keeping energy prices and risk sentiment in focus.