FX.co ★ Dollar Holds Near Two-Month High

The dollar index traded around 101.2 on Tuesday, hovering near a two-month high as expectations grew that the Federal Reserve will tighten policy further to counter energy-driven inflation stemming from persistent US-Iran tensions. Oil prices extended their gains after Iranian officials reportedly downplayed the likelihood of reaching an agreement before the US midterm elections in November, following President Donald Trump’s rejection of Tehran’s latest proposal.

Treasury yields also held at multi-decade highs, with both the 10-year and 30-year yields climbing above 5%. Futures markets now imply roughly a 70% chance of another Fed rate hike in October, after the central bank delivered its first increase in three years earlier this month.

Meanwhile, Fed Governor Lisa Cook noted that potential productivity gains from artificial intelligence may not be large or rapid enough to offset near-term price pressures, warning that this dynamic could contribute to broader inflation across the economy.