Dollar Retreats as Oil Prices Decline Amid Hormuz Deal Hopes

The US dollar retreated on Tuesday as oil prices declined, easing bets for a Federal Reserve rate hike. This development follows remarks from US Secretary Scott Bessent that a Hormuz deal is imminent, which boosted hopes of an end to the conflict and reduced inflation fears.

Bessent told CNBC that 'there is a chance we may have a deal today or tomorrow' on Hormuz, adding that talks about ending the conflict will follow. This optimistic outlook led to a slump in oil prices, with Brent crude dropping another 6% amid hopes of an imminent reopening of the strait.

The probability of a quarter-point hike by the Fed in September has dropped to 55%, while an October move now receives an 80% chance, according to futures markets. The US private employment report and ADP's non-manufacturing activity data will be closely watched today, as they could serve as a gauge for Friday's ISM services index.

The yen gave back some of its gains from the coordinated intervention by Japan and the US, with dollar/yen rebounding around 1.6% from its Monday low. Bessent's remarks that Bank of Japan Governor Ueda will 'do what is best' for the country's economy may limit further upside in the yen.