Key facts
- The U.S. dollar declined as Iran and Israel agreed to halt attacks.
- Easing Middle East tensions led the dollar to retreat from a two-month high.
- Strong U.S. jobs data bolstered expectations for Federal Reserve rate hikes.
- The euro and Japanese yen saw movements against the dollar.
- Markets anticipate a European Central Bank rate hike this week.
- Upcoming U.S. inflation data is a key focus for Fed policy.
The U.S. dollar edged lower on Tuesday as investors weighed hopes for a de-escalation in the Middle East against expectations of higher U.S. interest rates following strong jobs data. Iran and Israel announced they had halted attacks on each other after an appeal from U.S. President Donald Trump, leading the dollar to retreat from a two-month high.
Despite the easing geopolitical tensions, currency movements were somewhat muted as markets anticipate further rate hikes from both the Federal Reserve and the European Central Bank. Strong U.S. employment figures released late last week bolstered bets that the Fed will raise rates later this year. The dollar index, measuring the greenback against a basket of currencies, fell 0.12% to 99.88.
The euro gained 0.1% to $1.1545, supported by the pause in Middle East strikes, with attention now turning to the upcoming European Central Bank policy meeting where a 25-basis-point rate hike is widely expected. The Japanese yen weakened, hovering near 160.22 against the dollar, a level that could prompt official intervention. Investors are also keenly awaiting U.S. inflation data on Wednesday for further clues on the Fed's next moves.