The geopolitical backdrop in the Middle East remained tense after renewed threats to Iranian infrastructure from President Donald Trump, although reports of a potential deal could limit the demand for the dollar.
Escalating geopolitical risk continued to dominate global markets' concerns, with safe-haven demand keeping the dollar index anchored near a multi-week high.
The dominant force in play remains the Middle East conflict, which has kept oil prices elevated and inflation expectations firm. Reports that Washington is assembling a coalition to escort vessels through the Strait of Hormuz could offer some relief for the oil market and could weigh on the dollar.
The dollar index was firm on Tuesday as investors monitored developments around the US government shutdown. Hopes of a breakthrough emerged after National Economic Council Director Kevin Hassett suggested the shutdown could end this week. At the same time, easing concerns over trade tensions with China could lift the currency. Receding concerns over the US banking sector could also limit the pressure on the dollar.
The dollar index traded within a narrow range on Monday as easing US-China tensions provided support to the greenback. Market sentiment improved slightly after President Donald Trump signalled that broad tariffs on China would be unsustainable and negotiators from both sides confirmed plans for renewed talks in the coming days. Any progress this week could reinforce risk appetite and support the dollar, while setbacks could quickly reverse the tone.
