The dollar index rose on Tuesday, reversing previous losses as renewed doubts over the durability of the US-Iran ceasefire revived demand for the currency.
Risk appetite deteriorated after President Donald Trump rejected Tehran’s latest proposal and warned that the ceasefire was “on life support,” raising fears that tensions could intensify again.
The renewed geopolitical uncertainty pushed oil prices higher, reinforcing concerns over persistent inflationary pressures. As a result, Treasury yields extended their advance, with the 10-year note hovering near a high. At the same time, markets continue to expect the Federal Reserve to keep interest rates unchanged, which could support the dollar.
Attention is turning to the upcoming US inflation report. A strong reading would likely reinforce the narrative that the Federal Reserve will need to keep rates unchanged for an extended period and potentially fuel more hawkish views, particularly as higher energy prices risk feeding into broader inflation expectations. Conversely, weaker-than-expected data could weigh on treasury yields and limit the dollar’s gains.
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