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- US Dollar Index may appreciate on safe-haven demand after reports that Iran halted indirect negotiations with the United States.
- Iran and its “Resistance Front” allies plan to block the Strait of Hormuz and Bab el-Mandeb to punish Israel and its supporters.
- The Greenback gains as renewed Middle East tensions fuel inflation fears and expectations of elevated Federal Reserve interest rates.
The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, is moving sideways after registering modest gains in the previous day and trading around 99.20 during the Asian hours on Tuesday.
The Greenback may further appreciate as safe-haven demand increases after Tasnim news agency indicated that Tehran has halted indirect negotiations with the United States. According to the report, Iran and its “Resistance Front” allies, spanning Yemen, Lebanon, and Iraq, have established an agenda to completely block the critical Strait of Hormuz and activate additional fronts, including the Bab el-Mandeb Strait, as a means to punish Israel and its supporters.
The escalation was further compounded by an Axios report on X stating that Iran deployed additional naval mines in the strait last week. These combined developments pose a severe obstacle to a swift resolution of the crisis, which has already effectively shut down the Strait of Hormuz, a vital chokepoint for global oil and liquefied natural gas supplies.
US Dollar Index received support from renewed tensions in the Middle East, which continue to fuel global inflation concerns and stoke expectations of elevated Federal Reserve (Fed) policy rates. Reflecting these persistent inflationary pressures, financial markets are now pricing in a potential Federal Reserve (Fed) rate hike before the year ends, with the CME FedWatch tool currently indicating a 39% probability of a quarter-point increase in December.
However, US President Donald Trump offered a more optimistic outlook, stating that negotiations remain ongoing and suggesting that a memorandum of understanding to reopen the Strait of Hormuz could be reached within the coming week. Concurrently, regional diplomacy continues to shift as Lebanese authorities have called for any extension of the ceasefire agreement between Hezbollah and Tel Aviv to encompass all Lebanese territory.
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