The US dollar edged lower on Tuesday, pausing after a jump in the previous session. Yesterday’s climb was driven by safe-haven demand amid an escalation in tensions between the United States and Iran.
Markets could remain cautious today ahead of the US inflation data release and Fed Chair Kevin Warsh’s testimony.
Treasury yields remained at elevated levels with inflation concerns returning as oil prices rose to a month-high amid the increase in geopolitical tensions.
Washington announced the reinstatement of the blockade on Iranian shipments while rising tensions in the Strait of Hormuz cloud the outlook for regional energy flows. This could contribute to a tighter supply outlook, higher oil prices, more inflation risks and upside pressure for yields, which could continue to support the dollar.
Interest rate hike expectations have also strengthened. Markets now price two hikes by year-end, up from one a week ago, a repricing that could help underpin yields and the dollar.
Attention turns to today’s US inflation data and Fed Chair Kevin Warsh’s testimony before Congress, as well as comments from several other Fed officials. A firmer print or hawkish tone from Warsh and his colleagues could extend the rise in yields, while softer data or less hawkish remarks could prompt traders to trim rate hike bets, weighing on the dollar
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