FX.co ★ Dollar Firms Up on Safe-Haven Demand

The dollar index hovered around 98.5 on Tuesday after surging nearly 1% in the previous session, bolstered by safe-haven demand amid mounting risks of further escalation in the US and Israeli conflict with Iran. A senior US official reportedly signaled that Washington is preparing to significantly intensify attacks on Iran within the next 24 hours, with planned strikes on the country’s missile production facilities, drone programs and naval assets.

The greenback also gained support from expectations that higher energy prices, driven by the conflict, will stoke inflation and diminish the chances of near-term interest rate cuts by the Federal Reserve. Markets now anticipate the next Fed rate cut in September, pushed back from earlier expectations of July, though two 25-basis-point reductions are still priced in for this year. At the same time, elevated energy costs and rising inflation risks weighed on the currencies of other major energy-importing economies, particularly in Europe and Japan.