US dollar holds near highs as traders watch Fed and Middle East risk

The dollar steadied in early Asian trading on Tuesday after US President Donald Trump paused a planned military strike on Iran to allow room for negotiations.

The greenback had gained support in recent sessions as investors sought safe-haven assets amid fears that escalating tensions in the Middle East could disrupt global energy supplies and fuel inflationary pressures.

The prospect of prolonged disruption through the Strait of Hormuz, a critical shipping route for global oil exports, had unsettled markets and pushed central banks into focus as investors weighed the possibility of tighter monetary policy to counter rising prices.

Dollar steadies after recent gains

The US dollar index, which measures the greenback against a basket of major currencies, was little changed at 99.026 after falling 0.3% on Monday.

Markets appeared calmer on Tuesday after a sharp two-day selloff in global bond markets drove sovereign yields to their highest levels in roughly a year.

Benchmark US 10-year Treasury yields eased three basis points to 4.591%, while Brent crude futures dropped 2.4% to $109.43 a barrel as fears of an immediate escalation in the Middle East eased.

The retreat in oil prices helped reduce some inflation concerns that had weighed heavily on markets at the start of the week.

Fed outlook remains key focus

Investors are now turning their attention back to the outlook for US monetary policy, with inflation risks and energy prices remaining central to expectations around interest rates.

According to CME FedWatch data cited by Reuters, traders are pricing in a 36.2% probability of a 25-basis-point interest-rate increase at the Federal Reserve’s December meeting.

Higher interest rates typically support the dollar by increasing the appeal of US assets, particularly during periods of geopolitical uncertainty and market volatility.

At the same time, investors remain cautious about the broader economic impact of persistently elevated borrowing costs, especially as global growth indicators soften.

Yen, euro and sterling trade mixed

The dollar was little changed against the Japanese yen, with USD/JPY trading at 158.895 after data showed Japan’s economy expanded at an annualised pace of 2.1% in the first quarter.

The euro traded at $1.1650, while sterling stood at $1.3427 against the dollar.

Currency markets remained sensitive to shifts in bond yields, commodity prices and expectations for central bank policy moves across major economies.

Cryptocurrencies hold firm

In digital assets, Bitcoin traded at $77,005.69, while Ethereum stood at $2,131.91.

Cryptocurrency markets were relatively stable despite broader volatility across traditional financial markets, with investors continuing to monitor macroeconomic developments and geopolitical risks.