Key facts
- The U.S. dollar held near a two-month high as Middle East tensions persisted.
- Traders increased bets on a Federal Reserve rate hike later this year.
- Foreign investors increased purchases of two- and five-year U.S. Treasury notes.
- Demand for seven-year U.S. Treasury debt from foreign investors slightly decreased.
- U.S. inflation data on Wednesday is a key focus for clues on the Fed's next moves.
- The European Central Bank is expected to raise rates this week.
The U.S. dollar held near a two-month high on Tuesday, firming against most major peers as Middle East uncertainty curbed risk appetite and traders ramped up bets on a Federal Reserve rate hike later this year. Iran and Israel halted attacks on each other, but tensions remained high, underpinning safe-haven demand for the greenback. The euro stood at $1.1528 and sterling fetched $1.3335, both down roughly 0.05% in Asia. The Australian dollar was down 0.1% at $0.7039, and the New Zealand dollar traded at $0.5804. The Japanese yen weakened to as much as 160.295. The dollar index was little changed at 100.03, near Monday's two-month high of 100.21.
Markets are keenly eyeing U.S. inflation data on Wednesday for clues to the Federal Reserve's next moves after a robust jobs report last week ramped up bets on a rate hike this year. Fed funds futures traders now see a 70% chance of a hike by December. Treasury yields remained broadly elevated on rate hike expectations, with those on the 2-year note hovering near a 15-month peak while the benchmark U.S. 10-year was firmly above 4.5%.
Foreign investors showed mixed demand at U.S. Treasury auctions in June, increasing their purchases of two- and five-year notes while slightly reducing their appetite for seven-year debt. Overseas investors bought $9.923 billion of the latest two-year notes, up from $9.158 billion in the April auction. Demand for five-year notes also rose, with foreign investors taking $8.946 billion, a 6.3% increase from the previous auction's $8.417 billion. Purchases of seven-year debt by overseas investors were trimmed to $5.651 billion in June, compared to $5.817 billion in April. The Treasury offered a total of $79 billion in two-year notes, $80 billion in five-year debt, and $50 billion in seven-year securities at these auctions.
Elsewhere, the European Central Bank is widely expected to raise rates this week, with another increase likely in September, as it seeks to balance energy-driven inflation against a weakening economy.