Dollar Holds Near One-Week High Amid Middle East Tensions and Ceasefire Talks

The U.S. Dollar Index eased to 100.93 on Tuesday after reaching its highest level since July 15 a day earlier, as markets assessed ongoing tensions involving Iran alongside reports of a mediator-backed 10-day ceasefire proposal, according to Reuters.

Factors Supporting the Dollar

U.S. Central Command reported a ninth consecutive night of strikes targeting Iranian command centers and maritime infrastructure, while Yemen's Houthi movement announced a naval blockade against Saudi Arabia, adding concerns over potential supply disruptions.

Markets responded across several asset classes:

① Oil traded near six-week highs before easing as traders balanced energy supply concerns against ceasefire discussions.

② The 10-year U.S. Treasury yield remained around 4.59%, while the 30-year yield stayed above 5%, with investors assessing whether higher energy prices could influence the Federal Reserve's policy outlook.

③ USD/JPY traded near 162.53, with elevated Treasury yields continuing to provide support for the pair.

Regional Currency Markets

For Southeast Asian markets, several currency moves drew attention:

① USD/KRW fell 0.1% to 1,474.05 as the Korean won continued to strengthen following South Korea's recent foreign-exchange liberalization measures. Citi said capital outflow pressures have begun to ease.

② USD/CNY edged down to 6.7660 after China kept its benchmark lending rates unchanged while continuing targeted fiscal support measures.

③ USD/NZD declined 0.4% after New Zealand's second-quarter inflation accelerated to 4.1% year over year, supporting market expectations of a possible September rate increase by the Reserve Bank of New Zealand.

Key Events This Week

Bank Indonesia is scheduled to announce its policy decision on Wednesday. Market expectations remain divided, with MUFG Research and FocusEconomics noting the possibility of a 25-basis-point rate increase to support the rupiah, while other market participants expect rates to remain unchanged.

The ECB policy decision follows on Thursday, while meetings by the Bank of Japan and the Federal Reserve next week will be closely watched for further guidance on the global interest-rate outlook.