Dollar feeble as rate hike bets dwindle, Iran conflict in focus

The U.S. dollar remained relatively stable against major currencies on Tuesday due to expectations of the Federal Reserve maintaining a dovish stance, following softer economic data. The euro dipped slightly from its two-month peak of $1.161, settling at $1.15760. Recent economic data, including unexpected job losses and mild inflation, has led investors to reduce their expectations of a rate hike by the Federal Reserve, with market projections now leaning towards a near-70% probability of a pause rather than a hike.

This shift in sentiment has resulted in a weakening dollar, impacting various currency pairs. Analysts noted that despite a slight uptick in Fed expectations, a September rate hike remains unlikely given the benign inflation and labor market softness. The Japanese yen experienced a minor decline against the dollar, while the Australian dollar saw a slight weakening.

The conflict in Iran, coupled with the ongoing tension at the Strait of Hormuz, continues to pose inflationary risks and influence global interest rates.