Dollar near six-week high amid Iran war jitters, markets watch Fed

The U.S. dollar held close to six-week highs as markets weighed uncertain progress in U.S.-Iran negotiations alongside energy supply concerns; investors monitored both geopolitical headlines and the Federal Reserve outlook.

During the session the dollar index rose about 0.04% to 99.24, the euro traded near $1.1611 and the pound around $1.3444, while the Australian dollar was near $0.7136. Reuters reported that although some steps forward have been signalled, significant gaps remain on Tehran’s uranium stockpile and control over the Strait of Hormuz — issues that keep oil markets and risk premia volatile.

A sustained rise in oil prices amid disruptions would feed into core inflation, prompting markets to reassess central bank policies. Fed funds futures show roughly a 50% chance of a rate hike by October, reflecting how energy-driven inflation concerns can translate into higher odds of tighter U.S. policy and support for the dollar as a yield and safe-haven asset.

The yen remained under pressure, trading near 159.11 per dollar, with market participants debating the likelihood of further Tokyo intervention. At the same time, Japan’s softer core inflation readings complicate the Bank of Japan’s path to hiking rates quickly, leaving the yen vulnerable to yield differentials with other major central banks.

Market strategists say that unless negotiations produce clear, market-friendly outcomes, volatility in oil and currencies could persist and keep policymakers and investors on edge. In the near term, risk sentiment will hinge on headlines from the talks and incoming U.S. inflation and sentiment data; a decisive breakthrough could reverse some of the dollar’s gains, while setbacks would likely reinforce safe-haven flows.