Dollar Holds Near High as Euro Recovers Modestly

The U.S. dollar remained near an 18-month high on Tuesday, supported by elevated U.S. yields, while the euro staged a modest recovery from its 17-month low. The euro rose 0.2% to $1.1230, ending an extended decline driven by French bond market volatility and rising Middle East energy costs. Against the yen, the euro gained 0.3%, breaking an eight-session losing streak, the longest since 2024.

The U.S. Dollar Index dipped 0.2% to 102.11 but stayed close to its recent peak of 102.21. Against the yen, the dollar held steady around 157.92 as traders weighed persistent U.S. inflation against weakening services-sector data.

ECB Chief Economist Philip Lane offered a cautious outlook on inflation, noting that high energy prices had not yet sparked aggressive second-round inflation effects in the Eurozone. 'We have not seen so far very strong second-round effects,' Lane said, suggesting the ECB may avoid aggressive policy tightening despite elevated consumer price growth. This approach aligns with recent remarks from Federal Reserve officials, who also advocate patience before raising interest rates further.

Thursday’s release of the Federal Open Market Committee (FOMC) meeting minutes could provide further clarity on the Fed’s stance. Analysts warn that a cautious tone in the minutes, especially after last week’s weak jobs report, could weaken the dollar’s dominance. Meanwhile, strong U.S. yield premiums continue to attract institutional capital, reinforcing the dollar’s strength against lower-yielding currencies.