The U.S. dollar edged higher early Tuesday as fragile risk sentiment continued to dominate markets amid sustained tensions between Israel and Iran. However, gains remained limited ahead of the Federal Reserve’s highly anticipated policy decision.
As of 04:10 ET (08:10 GMT), the U.S. Dollar Index—tracking the greenback against a basket of six major currencies—was up 0.2% at 97.745.
The dollar drew some support from its safe-haven appeal as hostilities between Israel and Iran persisted. President Donald Trump added to geopolitical jitters by urging Iranian citizens to evacuate Tehran, cutting short his visit to the G7 summit. Although White House officials downplayed the prospect of direct U.S. involvement, the remarks stoked market anxiety.
Still, a report from Axios suggested U.S. and Iranian officials are pursuing backchannel talks on a ceasefire and a possible nuclear agreement, despite recent setbacks in negotiations. ING analysts noted that while the conflict is lending intermittent support to the greenback, it hasn’t translated into a sustained rally: “The situation has shown little sign of de-escalation, but the dollar has yet to mount a meaningful rebound.”
On the economic front, the Fed is widely expected to keep rates unchanged when it concludes its two-day meeting on Wednesday. Markets will be laser-focused on Chair Jerome Powell’s comments for guidance on the rate path ahead.
Investors are also eyeing developments from the G7 leaders’ meeting in Canada, where trade discussions may take center stage. “Trump has historically softened his protectionist tone following direct talks with other leaders,” ING said. “Any sign that the 90-day tariff pause will be extended could offer fresh support for the dollar.”
Euro Eyes Sentiment Data
In Europe, the euro ticked slightly higher, with EUR/USD up to 1.1562 ahead of Germany’s ZEW economic sentiment survey for June. The data is expected to reflect a modest improvement in confidence within the eurozone’s largest economy.
“The euro’s impact on EUR/USD remains marginal, but today’s ZEW release could move the market,” said ING. “We maintain a bearish bias and favor a near-term move toward 1.15 rather than 1.16. Still, persistent dip-buying behavior keeps upside risks alive.”
Pound Slips Ahead of BoE Decision
GBP/USD dipped 0.1% to 1.3567 as markets await Thursday’s Bank of England decision. The central bank is expected to leave rates unchanged after its 25bps cut in May, as it navigates a slowing economy alongside lingering inflation pressures.
Bank of Japan Holds Rates, Signals Gradual Policy Shift
In Asia, USD/JPY fell 0.1% to 144.58 after the Bank of Japan left its policy rate at 0.5%, as expected. The BoJ announced plans to scale back its bond-buying program more gradually beginning in April 2026—cutting purchases by 200 billion yen per quarter, down from the current pace of 400 billion.
The central bank warned of slowing growth amid global trade headwinds, though it remains concerned about persistent domestic inflation.
Meanwhile, USD/CNY rose 0.1% to 7.1823 ahead of a People’s Bank of China meeting later this week. The PBoC is expected to hold rates steady after a cut earlier this year.
