The dollar index remained in a range on Tuesday amid a cautious atmosphere as market participants weighed conflicting signals surrounding US-Iran negotiations.
As such, geopolitical headlines could continue to dominate market attention.
President Donald Trump stated that discussions with Iran continue while efforts to limit tensions in Lebanon remain ongoing, despite prior reports suggesting Tehran had suspended indirect negotiations with Washington.
Any new signs of setbacks in the diplomatic process are likely to be met with market volatility and could fuel demand for the dollar, particularly given the potential implications for energy markets, inflation expectations, and broader risk sentiment.
At the same time, the domestic economic backdrop remains supportive for the US currency. The latest ISM Manufacturing PMI surprised to the upside, reaching its highest level in three years and pointing to continued strength in industrial activity. This has helped sustain expectations that the Federal Reserve could maintain a cautious stance for longer, which could continue to provide support to both Treasury yields and the dollar.
Attention now turns to the JOLTS job openings report and, later this week, the non-farm payrolls release. The labour market indicators could affect the view on economic resilience and on the possibility of an interest rate hike.
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