Dollar Moves Higher

The dollar index rose to 99.4 on Tuesday, as traders continued to navigate the conflict with Iran and assess prospects for de-escalation. Reports point to ongoing communication and diplomatic efforts to end the war, but fighting has persisted despite President Trump’s announcement of a five-day pause. Adding to concerns, the Wall Street Journal reported that Saudi Arabia and the UAE are moving closer to joining the conflict against Tehran. Iran has continued its attacks on US bases in the Gulf and maintains that no negotiations with the US are underway. Meanwhile, oil prices are still rising, albeit at a slower pace, keeping pressure on inflation. As a result, traders are no longer expecting the Federal Reserve to deliver any rate cuts this year. Last week, the central bank left the fed funds rate steady and pointed to uncertainty about the impact of the Middle East war in the US economy, but still pointed to one quarter point reduction in 2026 and another in 2027.

The dollar index climbed toward 99.5 on Tuesday, recovering some losses from the previous session as Iran denied any talks to end the conflict, pushing back against President Donald Trump’s claims. Tehran also said it launched new attacks on US targets, while Israel continued strikes against Iran, keeping tensions elevated. On Monday, the dollar had come under heavy selling pressure after Trump postponed planned strikes on Iranian energy infrastructure for five days, citing productive discussions with Iran over the past two days. The outcome of any talks and the potential reopening of the Strait of Hormuz remain highly uncertain, while Middle Eastern energy capacity may take time to return to prior levels. That raises the risk of higher inflation in the coming months and the possibility of interest rate hikes from major central banks. Investors now turn their focus to upcoming US manufacturing data for fresh cues on how businesses are faring under heightened geopolitical risks.

The dollar index slipped to around 99.2 on Monday after President Donald Trump said he had instructed the Department of Defense to postpone all planned strikes on Iranian energy infrastructure for five days, citing productive discussions with Iran over the past two days. While Tehran has not confirmed the talks, the comments suggest a possible opening toward de escalation. Oil prices dropped sharply following the announcement, with WTI falling more than 9% below $90 per barrel and Brent sliding over 13% to under $97. Despite the pullback, earlier gains in energy costs have continued to fuel inflation concerns, reducing expectations for near term Federal Reserve rate cuts and prompting some traders to price in a potential hike later this year. Major central banks including the Fed, ECB, BOE and BOJ have all held rates steady while signaling readiness to tighten policy further if inflation persists.