Dollar hovers around two-month high as Iran-Israel truce hangs in balance

HONG KONG - The U.S. dollar held near a two-month high on Tuesday, firming against most major peers as Middle East uncertainty curbed risk appetite and traders ramped up bets on a Federal Reserve rate hike later this year.

Iran and Israel halted attacks on each other on Monday after an appeal from U.S. President Donald Trump, but tensions ran high as Tehran threatened to resume strikes if Israel continued to hit Iran-backed Hezbollah in Lebanon.

U.S. efforts to reach a lasting agreement with the Iranians to end their more than three-month-old war have made little headway, leaving oil prices elevated and underpinning safe-haven demand for the greenback.

The euro stood at $1.1528 and the sterling fetched $1.3335, both down roughly 0.05% so far in Asia after hitting their two-month lows in the previous session.

The risk-sensitive Australian dollar was down 0.1% at $0.7039, and the New Zealand dollar traded at $0.5804.

The Japanese yen weakened to as much as 160.295, continuing to hover around the 160 level widely seen as a line in the sand for potential official intervention.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, was little changed at 100.03, near the two-month high of 100.21 it struck on Monday.

"When you think about this idea of a peace deal or some sort of truce... what have we achieved in the past couple of weeks? Not a great deal," NAB's senior FX strategist Rodrigo Catril said in a podcast.

"We've seen the dollar being stronger because of this uncertainty, but also because of strong data in the U.S."

The offshore yuan was flat at 6.7857 per dollar, ahead of trade data due later in the day that is expected to show China's export growth strengthened in May.

INFLATION DATA IN FOCUS

Markets are keenly eyeing U.S. inflation data on Wednesday for clues to the Federal Reserve's next moves after a blowout job report last week ramped up bets on a rate hike this year. Fed funds futures traders now see a 70% chance of a hike by December, according to CME FedWatch.

Treasury yields remained broadly elevated on rate hike expectations, with those on the 2-year note hovering near a 15-month peak while the benchmark U.S. 10-year was firmly above 4.5%.

"Coming hot on the heels of Friday's robust non-farm payrolls report, a hotter-than-expected CPI print would undoubtedly add to mounting fears of a Fed rate hike before year-end," said Tony Sycamore, market analyst at IG.

"This scenario would provide fresh support for the U.S. dollar while putting renewed downward pressure on U.S. equities."

Elsewhere, the European Central Bank is widely expected to raise rates this week, with another increase likely in September, as it seeks to balance energy-driven inflation against a weakening economy.

(Reporting by Jiaxing Li in Hong KongEditing by Shri Navaratnam)

Copyright Reuters or USA Today Network via Reuters Connect.

This story was originally published June 8, 2026 at 9:33 PM.