The dollar index edged slightly higher on Tuesday as concerns about the lack of progress in the diplomatic efforts between the US and Iran reinforced safe-haven demand.
While negotiations remain ongoing, reports that President Donald Trump is dissatisfied with Iran’s latest proposal have dampened expectations for a near-term resolution, keeping markets on edge.
Additional hurdles in the diplomatic process could continue to fuel demand for the dollar as a safe-haven asset.
At the same time, ongoing disruptions in the Strait of Hormuz fuel upside pressure on oil prices, sustaining inflation concerns.
As a result, Treasury yields extended gains across maturities as expectations continue to shift toward less room for a dovish approach from the Federal Reserve. In this regard, interest rates are anticipated to remain on hold for an extended period.
Attention now turns to the Federal Reserve’s policy decision later this week. Markets will scrutinise the Fed Chair’s communication for any shift in tone. Additionally, labour market data and consumer confidence figures due today could also influence yields and the dollar, and could drive them up if the data signal continued economic resilience.
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