FX.co ★ Dollar Weakens as Yen Gains

The dollar index slipped to around 98.8 on Tuesday, falling for a second straight session as the yen extended its advance on expectations of more aggressive monetary tightening by the Bank of Japan and a continued unwinding of carry trades. In the US, investors shifted their focus to this week’s inflation data, which could offer clearer guidance on the interest rate path ahead of the Federal Reserve’s policy meeting next week. Markets are currently pricing in about a 60% chance of a 25-basis-point Fed rate hike next week, following stronger-than-expected employment data released on Friday. The European Central Bank is also widely expected to raise interest rates this week. At the same time, investors monitored developments in the Middle East, where renewed US-Iran conflict has driven oil prices higher, keeping inflation risks firmly in the spotlight.