The US dollar faced pressure on Tuesday as oil prices tumbled, fueled by hopes of a diplomatic resolution between the US and Iran. Brent crude futures dropped over 7% on Monday, marking their steepest decline in months after Tehran reported ongoing talks to end the eight-month conflict. Lower energy prices eased inflation concerns, pushing longer-dated US Treasury yields down. The yield on the 10-year Treasury note held steady at 4.9145%, while the 30-year bond yield remained unchanged at 5.2868%, both having hit two-month lows in the prior session.
The dollar index, tracking the currency against a basket of peers, weakened slightly to 101.76 after hitting a one-month low on Monday. Meanwhile, an AI-driven stock market slump continued, dampening risk sentiment and providing some support to the dollar. Rising tensions ahead of the US midterm elections also bolstered the dollar's safe-haven appeal. Sim Moh Siong, FX strategist at OCBC, noted that 'oil relief is growing, but conviction elsewhere remains thin,' adding that 'cheaper energy is reshaping FX dynamics, while AI concerns and US election risks reinforce our view that the USD remains supported.'
The euro gained slightly to $1.1185 amid dollar weakness, while the Japanese yen held steady at 157.915 per dollar during a local holiday. The Australian dollar was unchanged at $0.7002, and the New Zealand dollar remained flat at $0.5617 ahead of the Reserve Bank of Australia's rate decision. Sterling rose 0.05% to $1.3414 after UK PMI data showed the strongest manufacturing output growth in over two years.
Several central banks are set to announce policy decisions this week, including the Reserve Bank of Australia, which is expected to raise rates by 25 basis points to 4.85%. The Bank of England is anticipated to hike its rate to 4.0% from 3.75%, the first increase since August 2023 when inflation was still significantly above its 2% target.