Key Takeaways

• Dollar pulls back: The DXY dipped 0.1% to 99.93, just below Monday’s two-month peak of 100.21.
• Israel-Iran halt attacks: Both sides paused strikes following Trump’s diplomatic intervention.
• Trump’s “total victory” declaration: The president said the U.S. was close to declaring victory and oil prices would fall sharply.
• Ceasefire fragility persists: Investors remain cautious about durability; Hormuz uncertainty lingers.
• Treasury yields stay elevated: Last week’s strong jobs report keeps rates on a hawkish trajectory.
• 70% December Fed hike probability: Markets have significantly repriced rate expectations.
• CPI Wednesday, PPI Thursday: Key inflation readings will test whether the dollar’s rally has more room to run.
• ECB rate hike Thursday: A 25 basis point increase is priced in; markets will watch closely for guidance on the policy outlook.
• Euro edges higher: EUR/USD rose for a second consecutive session ahead of the ECB decision.
• Bank Indonesia shocks: An unexpected 25 basis point rate hike took the policy rate to 5.50% in an off-cycle move to defend the rupiah.
• Rupiah soars: IDR/USD jumped nearly 1% — its strongest daily gain in over a year.
• Yen above 160: USD/JPY held above the intervention trigger level, keeping Tokyo on alert.

The U.S. dollar eased from a two-month high on Tuesday as investors weighed the durability of a fragile ceasefire between Israel and Iran and looked ahead to key U.S. inflation data that could offer fresh clues on the Federal Reserve’s interest-rate trajectory.

The U.S. Dollar Index traded 0.1% lower at 99.93 by 04:27 ET, just below the two-month high of 100.21 touched in the previous session.

Israel and Iran Halt Attacks After Trump Appeal

Risk sentiment improved after Israel and Iran halted attacks following diplomatic efforts led by U.S. President Donald Trump.

Trump said on Monday evening that the United States was close to declaring a “total victory” in the Iran war, and that oil prices were likely to fall sharply.

Still, investors remained cautious about the durability of the ceasefire, with geopolitical tensions lingering and uncertainty surrounding the Strait of Hormuz — a critical artery for global energy shipments.

Treasury yields stayed elevated following last week’s robust U.S. payrolls report, which reinforced expectations that the Federal Reserve could keep monetary policy restrictive for longer.

Markets are now pricing roughly a 70% chance of a Fed rate hike by December.

Attention now turns to U.S. consumer price index data due on Wednesday and producer price figures on Thursday. Stronger-than-expected inflation readings could bolster the case for prolonged policy restraint and lend renewed support to the dollar.

ECB in Focus; Indonesia Hikes Rates Unexpectedly

The euro edged higher for a second consecutive session as investors turned their attention to Thursday’s European Central Bank policy meeting, where markets expect a 25-basis-point interest-rate increase — reflecting inflationary pressures stemming from the recent Middle East conflict.

While the rate decision itself is priced in, investors will be closely watching the ECB’s guidance for clues on the policy outlook and how policymakers assess the inflationary implications of higher energy costs.

Elsewhere, Bank Indonesia unexpectedly raised its benchmark interest rate by 25 basis points on Tuesday, taking the policy rate to 5.50%.

The off-cycle move underscores the central bank’s efforts to support the rupiah amid declining foreign-exchange reserves and subdued investor demand for Indonesian assets. The rupiah jumped nearly 1% against the dollar — its strongest daily gain in more than a year.

Meanwhile, the Japanese yen’s USD/JPY pair traded unchanged above the 160-yen mark — levels at which markets tend to get nervous about a potential intervention from Tokyo.