Dollar Stabilizes Amid Escalating Middle East Tensions

The US dollar has stabilized and is rebounding from its lowest levels in two months due to escalating tensions in the Middle East, which have overshadowed dovish expectations of a rate hold by the Federal Reserve.

The dollar index (DXY) held flat at 99.65, pulling back from its multi-month trough of 99.33 touched in the prior session.

The greenback's modest recovery comes despite a series of soft US economic metrics, including an unexpected contraction in July nonfarm payrolls and flat wholesale price growth, which led money markets to price in a roughly 65% probability of a Fed rate hold at its September policy meeting.

H owever, the emergence of a fresh energy shock has re-injected inflation fears into the global foreign exchange landscape, with oil prices surging past $91 a barrel after a framework US-Iran ceasefire expired and Tehran announced a shift to a 'fully offensive' military posture, while Washington threatened military action against Oman over Persian Gulf transit disputes.