The dollar index stabilized around 99.5 on Tuesday after falling in the previous session, as investors continued to reassess the outlook for Federal Reserve interest rate hikes in light of hawkish remarks from Chair Kevin Warsh and a renewed rise in oil prices.
Market participants are also preparing for a busy run of US economic data, with the latest readings on manufacturing and services activity due later today, followed by the closely watched August employment report on Friday.
Warsh said on Friday that the Fed will “have work to do” if policymakers are not sufficiently confident that inflation is moving toward the 2% target, signaling the possibility of a near-term rate increase to counter persistent price pressures. In response, markets are now assigning more than a 65% probability to a rate hike in September, up from about 36% before his comments.
At the same time, oil prices rose for a second consecutive session after US forces struck an island in the Strait of Hormuz, prompting Iran to retaliate with attacks on the UAE and Jordan.
