Dollar Slides on Middle East Diplomacy Uncertainty

The US dollar has been trading near multi-week lows as markets await progress in the Middle East diplomatic process. Hopes for a deal between the US and Iran have reduced demand for safe-haven assets, limiting support for the currency.

A proposed agreement between Oman and Iran could leave the latter in control of traffic in the Strait of Hormuz. Any major breakthrough in diplomacy could ease upside pressure on oil prices and limit inflation concerns, potentially weighing on Treasury yields and the dollar.

Monetary policy expectations continue to diverge, with markets still anticipating an interest rate increase at the Federal Reserve's next meeting. However, the probability of a hold has increased, reaching 45%, limiting support for the dollar and yields.