FOREX: Dollar steadies from weakness as Trump calls off planned attack on Iran

SINGAPORE — The dollar steadied in Asian trading on Tuesday as markets digested U.S. President Donald Trump’s announcement that he had paused a planned attack on Iran to allow room for negotiations.

The U.S. dollar index, which measures the greenback against a basket of six major currencies, rose 0.1% to 99.076, attracting buying interest after snapping a five-day winning streak on Monday. The index had previously fallen as fears of further escalation in the Middle East briefly eased.

“The overreaction is being walked back around these headlines we saw overnight,” said Tony Sycamore, market analyst at IG in Sydney. “Traders have become well accustomed to this cycle of weekend tensions followed by talk of progress on Monday.”

U.S. Treasury yields moved lower, with the 10-year note down 2.4 basis points at 4.5974% after earlier reaching a one-year high. The decline came as easing oil prices helped temper inflation concerns. Brent crude futures fell 2% to $109.84 per barrel.

The dollar had strengthened over the past week amid rising geopolitical tensions in the Middle East and a broader selloff in global bond markets. Investors had been pricing in the risk that central banks could be forced to tighten monetary policy further if inflation pressures persist, particularly with concerns over potential disruptions in energy flows through the Strait of Hormuz.

Fed funds futures are currently pricing a 37.4% probability of a 25-basis-point rate hike at the U.S. Federal Reserve’s two-day policy meeting on December 9, according to CME Group’s FedWatch tool. This compares with just a 0.5% probability a month earlier.

Against the Japanese yen, the dollar rose 0.1% to 158.95. Japan’s economy expanded at an annualized rate of 2.1% in the first quarter, government data showed on Tuesday, exceeding expectations for a 1.7% increase.

Analysts at DBS said the data “should help alleviate stagflation concerns.”

Japanese Finance Minister Satsuki Katayama said on Monday that authorities are prepared to respond to excessive foreign exchange volatility. She added that any intervention to support the yen and sell dollars would be carried out carefully to avoid pushing U.S. Treasury yields higher.

Markets remain alert for further intervention, after Japanese authorities stepped into the currency market last month for the first time in nearly two years to support the yen. Central bank data suggests Tokyo may have spent close to 10 trillion yen ($63 billion) since launching its latest round of intervention on April 30.

The Australian dollar fell 0.5% to $0.71345 after minutes from the Reserve Bank of Australia’s May 5 meeting showed policymakers viewed interest rates as restrictive following three hikes this year. The central bank signaled it would continue assessing economic and inflation data as it weighs future policy moves amid uncertainty surrounding global geopolitical risks.

“The minutes of the RBA’s May meeting confirmed that the Board considered the option of leaving rates on hold alongside a 25-basis-point hike,” analysts at Capital Economics said. “Looking ahead, the Board did not provide any clear signal as to its next move,” adding that the RBA is still likely to maintain a tightening bias.

The New Zealand dollar slipped 0.4% to $0.5854, tracking losses in the Australian dollar.

Elsewhere, the euro edged down 0.1% to $1.1644, while the British pound slipped 0.2% to $1.3411. The offshore Chinese yuan weakened slightly, with the dollar up 0.1% at 6.8031 yuan.

In digital assets, Bitcoin fell 0.2% to $76,734.76, while ether gained 0.6% to $2,128.65. -Reporting by Gregor Stuart Hunter; Editing by Jamie Freed and Sonali Desai/Reuters