The dollar index hovered near 101 on Tuesday after rising for three consecutive sessions, as escalating tensions between the US and Iran pushed oil prices higher and reignited concerns about inflation and further interest rate increases. US strikes on Iranian targets continued for a tenth straight day, with President Donald Trump warning that Tehran would be held accountable for the deaths of three US service members. At the same time, Iran-backed Houthi militants announced a maritime embargo against Saudi Arabia, heightening worries over energy shipments through the Red Sea.
Amid the hostilities, Iran said mediators had put forward proposals aimed at de-escalating tensions with the US, while media reports indicated that a 10-day ceasefire was under consideration. In interest rate markets, investors now assign roughly a 55% probability to a Federal Reserve rate hike in September, up from 51% the previous day. Meanwhile, Fed officials have entered the pre-meeting blackout period ahead of next week’s FOMC gathering, where policymakers are widely expected to leave the federal funds rate unchanged.
