Dollar Stabilizes Amid Fading Middle East Hopes, Crude Prices Rebound

The US Dollar (USD) has stabilized following its moderate recovery gains on Monday. Market optimism about a diplomatic resolution to the conflict in the Middle East has faded, but the USD remains supported ahead of next week's batch of US data.

Crude oil prices rebounded early Tuesday after falling more than 7% on Monday. At the time of press, the barrel of West Texas Intermediate (WTI) was trading near $79.50, rising about 1% on the day. Commerzbank analysts note that the latest leg lower in crude was driven by a sudden shift in geopolitical expectations after US President Donald Trump called off planned attacks on Iran and said talks will resume from Monday.

The USD Index staged a rebound to end the day marginally higher, fluctuating in a narrow channel above 100.00 in the European morning on Tuesday. Analysts at MUFG suggest that recent joint FX intervention between the US and Japan came with additional interesting details, including Scott Bessent's emphasis on a potential expansion of the FIMA facility for foreign central banks to obtain short-term Dollar liquidity.

MUFG analysts argue that this highlights concerns around possible forced selling of US Treasuries over the medium-term. They also point out that Gold's recovery remains constrained by conflicting forces, with the metal likely to remain caught between improving geopolitical sentiment and ongoing uncertainty over US interest rates.