FX.co ★ Dollar Holds Gains on Middle East Jitters

The dollar index hovered near 101.2 on Tuesday, holding on to gains from the previous session, as safe-haven demand strengthened after President Donald Trump reinstated a blockade on Iranian vessels transiting the Strait of Hormuz and called for reimbursement from countries benefiting from US efforts to secure the strategic shipping lane. The decision drove oil prices sharply higher and reignited concerns that central banks may be forced to raise interest rates to contain mounting inflationary pressures.

Investors also looked ahead to key US inflation data and Federal Reserve Chair Kevin Warsh’s testimony before Congress later in the day, with markets scrutinizing his comments for further policy guidance. Current pricing suggests markets see roughly a 51% probability of a Fed rate hike in September, compared with a 23% chance that the central bank will leave rates unchanged. The dollar was broadly stronger against most major currencies but slipped versus the New Zealand dollar following hawkish signals from the Reserve Bank of New Zealand.