The US dollar slipped on Tuesday as easing geopolitical tensions in the Middle East outweighed expectations of higher US interest rates ahead of key inflation data later this week.
The dollar index, which tracks the greenback against a basket of major currencies, fell about 0.24 percent to 99.77 after briefly hitting its highest level since early April in the previous session.
Market sentiment improved after reports that Israel and Iran had halted direct attacks following diplomatic pressure, raising hopes of reduced tensions around the Strait of Hormuz, a critical global oil shipping route.
Oil truce boosts risk appetite
Analysts said the prospect of reduced conflict helped boost investor appetite for risk-sensitive assets, while easing demand for traditional safe havens such as the US dollar.
The Australian dollar rose about 0.14 percent to US$0.7054 (≈₦960), reflecting improved risk sentiment in global markets.
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The euro also strengthened slightly to around US$1.1545 (≈₦1,570) as investors repositioned ahead of a European Central Bank policy meeting expected to deliver further interest rate tightening.
Rates outlook keeps dollar supported
Despite the decline, the dollar remains underpinned by expectations that the US Federal Reserve may still raise interest rates later in the year following stronger-than-expected employment data.
Market pricing suggests roughly a 70 percent probability of a US rate hike by December, with investors closely watching upcoming inflation figures for further direction.
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US Treasury yields rose sharply after the latest jobs report, reinforcing expectations that monetary policy will remain restrictive for longer to contain inflationary pressures.
ECB and global policy divergence
Attention is also focused on the European Central Bank, where markets widely expect a 25-basis-point rate increase at its upcoming meeting.
Some analysts say the ECB could signal a more aggressive tightening path if inflation forecasts remain elevated, further influencing euro-dollar dynamics.
The euro’s modest gains reflect shifting expectations that European policymakers may maintain a hawkish stance despite slowing growth concerns.
Yen under intervention watch
In Asia, the Japanese yen remained near the psychologically sensitive 160 level per dollar (≈₦217,600), a range widely viewed by traders as a potential trigger for government intervention.
Market participants are also pricing in a possible Bank of Japan rate increase at its upcoming policy meeting, although analysts warn that any move alone may not be enough to significantly strengthen the currency.
Outlook
While easing Middle East tensions have provided short-term relief for markets, analysts caution that currency movements will remain heavily driven by interest rate expectations, inflation data and central bank policy signals.
Investors are now focused on upcoming US inflation numbers and central bank meetings in Europe and Japan, which are expected to shape global currency and bond market direction in the weeks ahead.
