Dollar stronger on growing Fed rate hike bets

The US dollar is holding positive ground near 99.15 in early European trading on Tuesday, bolstered by the unclear geopolitical situation. Traders digested President Donald Trump’s announcement that he would “hold off” an attack on Iran scheduled for Tuesday at the request of Gulf leaders. Trump further stated that the US would be “probably satisfied” if it could reach an agreement with Iran that prevents Tehran from obtaining a nuclear weapon, according to the Guardian. However, the US President said that Washington was prepared to attack if an acceptable deal wasn’t reached, but didn’t set a deadline. Traders repriced the chance that the Federal Reserve would have to tighten policy to contain inflation with the Strait of Hormuz remaining closed and energy markets disrupted. They are pricing in a 35.0% probability that the Fed will raise rates by 25 basis points by year-end, according to the CME FedWatch tool. The preliminary report published by the Japanese Cabinet Office showed on Tuesday that the economy expanded 0.5% QoQ in the first quarter (Q1) of 2026, compared to a 0.3% growth seen in Q4 of 2025. This figure came in stronger than the expectation of a 0.4% expansion. Meanwhile, Japan’s economy grew at an annualized 2.1% in Q1, versus 1.3% growth prior, above the market consensus of 1.7%, on the back of improved consumption and strong exports. The Reserve Bank of Australia (RBA) minutes showed eight of nine board members backed the May rate hike to 4.35%, citing rising inflation risks from the Gulf conflict. One member preferred to await further data. “Members noted that inflation had been well above target in the months prior to the onset of the conflict in the Middle East,” the RBA minutes said. Members agreed that monetary policy could not prevent a near-term increase in the price level as higher fuel prices worked their way through to final prices. Looking ahead, traders brace for the Canadian Consumer Price Index (CPI) inflation report, which is due later on Tuesday. The headline CPI is expected to show a rise of 3.1% year-over-year in April, compared to 2.4% in March. On a monthly basis, the CPI is projected to show an increase of 0.6%, versus 0.9% prior. EURUSD is losing traction to near 1.1645 in the European morning. Energy supply constraints stemming from Middle East tensions could weigh on the shared currency. However, hawkish remarks from European Central Bank policymakers might help limit the Euro’s losses. GBPUSD remains weak around 1.3415, pressured by UK political turmoil. The ILO Unemployment Rate climbed to 5.0% in the three months to March after reporting 4.9% in the previous reading, according to the Office for National Statistics. Tuesday’s ONS figure came in above the market consensus of 4.9%. Meanwhile, the number of people claiming jobless benefits rose by 26,500 in April, compared with a revised increase of 4,900 in March and the expected 27,300 gain. The Employment Change arrived at 148,000 in March, versus 25,000 seen in February. USDJPY edged higher to near 158.90, extending its rally for a seventh consecutive day. Japan’s Finance Minister Satsuki Katayama said on Monday that officials stand ready to act against excessive foreign exchange volatility at any time, while ensuring that any intervention is conducted in a way ‌that avoids pushing up US Treasury yields. Gold tumbled to $4,545 after posting modest gains on Tuesday. The Iran war has fueled inflation concerns and expectations of tighter monetary policy, weighing on the precious metals. (Source: OANDA) The post Dollar stronger on growing Fed rate hike bets appeared first on Financial Mirror.