Markets stay cautious as Middle East developments and Fed signals hold focus

Markets remained cautious on Tuesday as investors closely monitored developments in the Middle East while awaiting fresh economic data from the United States.

With no major high-impact data releases scheduled for the early part of the day, market participants focused on geopolitical headlines and remarks from central bank officials.

Later in the session, attention is expected to shift to the release of the US Goods Trade Balance data for May, along with the Automatic Data Processing's (ADP) Employment Change 4-week Average, both of which are featured on the day's economic calendar.

US Dollar holds steady after early gains

The US Dollar (USD) began the week on a stronger footing, advancing against most major currencies during the first half of Monday's session. However, improving investor risk appetite, reflected in gains on Wall Street, prevented the currency from extending its advance.

As a result, the US Dollar Index surrendered its earlier gains and finished Monday's session broadly unchanged. During European trading on Tuesday morning, the index fluctuated around the 101.00 level as investors awaited fresh catalysts.

Middle East developments keep markets alert

Geopolitical developments also remained a key driver of market sentiment.

Reports indicated that Iran's Islamic Revolutionary Guard Corps (IRGC) attacked a commercial vessel sailing near the Strait of Hormuz on Monday.

Meanwhile, US President Donald Trump told reporters that the United States would either reach a deal or "finish the job."

Following limited movement during Monday's session, crude oil prices edged higher early Tuesday.

West Texas Intermediate (WTI) crude rose more than 1% on the day, trading near $69.50 per barrel as investors assessed the latest geopolitical developments.

Indian rupee weakens

The Indian Rupee (INR) extended Monday's losses against the US Dollar during early trade on Tuesday, with the USD/INR pair holding firm near 95.36.

The domestic currency remained under pressure after renewed geopolitical tensions in the Middle East raised concerns over global energy supplies.

Euro holds range despite ECB hawkish signals

The euro remained broadly stable against the US dollar, with EUR/USD trading in a narrow range below 1.1450 after ending Monday's session virtually unchanged.

Sterling extends recovery while Yen pauses

The British pound continued its recent recovery against the US dollar. GBP/USD extended Monday's rebound and climbed to its highest level since mid-June, approaching 1.3400 during the Asian session on Tuesday.

The pair later eased modestly during European trading, slipping below 1.3380.

Investors are also awaiting the Bank of England's Financial Stability Report, scheduled for release later in the day.

Meanwhile, USD/JPY, which gained more than 0.4% on Monday to finish above 162.00, traded sideways on Tuesday morning.

The pair struggled to maintain its upward momentum and remained slightly below Monday's closing level as markets awaited fresh economic and geopolitical developments.