THE US dollar traded near its highest level since May 2025 on Tuesday as expectations of tighter Federal Reserve monetary policy outweighed the market impact of easing geopolitical tensions following progress in peace negotiations between the United States and Iran.
The US Dollar Index hovered around 101 after Washington granted Tehran a 60-day licence to sell oil on international markets, a move that fuelled expectations of increased global crude supplies and placed renewed downward pressure on energy prices.
Investors continued to favour the greenback after the Federal Reserve maintained its hawkish policy stance last week and raised its inflation projections, reinforcing expectations that borrowing costs could rise further before the end of the year.
Market sentiment was strengthened after both Deutsche Bank and BofA Global Research revised their forecasts to include a Federal Reserve interest rate increase in September.
Attention has now shifted to the release of the United States Personal Consumption Expenditures (PCE) Price Index later this week, the Federal Reserve's preferred measure of inflation, which is expected to provide fresh guidance on underlying price pressures and the future path of monetary policy.
Meanwhile, the euro weakened against the US dollar, with EUR/USD slipping towards 1.1430 after disappointing Eurozone consumer confidence data undermined sentiment.
European Central Bank President Christine Lagarde said policymakers were not seeing evidence that the latest inflation shock required a more aggressive monetary policy response. Investors also continued to assess the ECB's latest projections, which forecast headline inflation averaging three per cent in 2026.
Sterling remained comparatively resilient, with GBP/USD trading near 1.3250 despite political uncertainty in the United Kingdom following the announcement that Prime Minister Sir Keir Starmer has resigned.
Currency traders are now awaiting further guidance from Bank of England policymakers, with speeches by Megan Taylor and Swati Dhingra scheduled for Tuesday, followed by Sarah Breeden on Wednesday.
The Japanese yen remained under pressure as USD/JPY hovered around 161.60 after briefly approaching the psychologically important 162.00 level, close to territory widely viewed by markets as likely to trigger official intervention.
Investors are now looking ahead to Japan's upcoming Leading Economic Indicators and Tokyo Consumer Price Index data for further clues on the country's economic outlook and potential policy direction.
The Australian dollar also remained under pressure, with AUD/USD trading near 0.7000 amid cautious market sentiment ahead of key domestic inflation data on Wednesday and employment figures on Thursday.
The upcoming releases are expected to play an important role in shaping expectations for the Reserve Bank of Australia's next policy move after markets recently oscillated between anticipating a pause in interest rates and a more cautious policy trajectory.
In commodity markets, West Texas Intermediate crude oil fell sharply to around US$74.20 per barrel after optimism surrounding US-Iran peace negotiations reduced the geopolitical risk premium embedded in energy prices.
Crude prices declined by more than three per cent as negotiations in Switzerland increased expectations that Iranian oil exports could soon return to global markets, easing concerns over supply constraints.
Gold recovered from a one-week low as falling oil prices helped moderate inflation expectations, while lingering uncertainty surrounding US economic policy and geopolitical developments continued to underpin demand for traditional safe-haven assets.
Spot gold rose 0.84 per cent to approximately US$4,190 per troy ounce, although gains remained constrained by growing expectations that the Federal Reserve will maintain a tighter monetary policy stance in the months ahead. - June 23, 2026
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