The US Dollar remained near a one-month high on Tuesday as investors assessed the possibility that the Federal Reserve could still deliver another interest rate hike at its upcoming meeting.
While expectations for further tightening remained limited, the recent decline in oil prices helped ease inflation concerns.
The Dollar index, which tracks the greenback against a basket of major currencies, slipped 0.07% to 101.45. The Euro edged up 0.09% to $1.1377, while the Dollar traded at 163.73 Yen. Sterling also gained 0.09%, rising to $1.3299.
Although the suspension of US military strikes on Iran sent oil prices lower and helped ease some inflation concerns, US Treasury yields declined only slightly, lagging the broader market moves seen overnight, Reuters reports.
The Federal Reserve begins its two-day policy meeting on Tuesday, with its decision due on Wednesday. An increasing number of major brokerages believe there is a genuine possibility the central bank could raise interest rates this week, following this month's spike in oil prices and heightened tensions in the Middle East.
According to CME FedWatch, markets are currently assigning a 37.9% probability of at least a 25-basis-point rate hike at this week's meeting, up sharply from 16% just a week ago. Investors are also pricing in an almost 81% chance of a rate increase at the Fed's September policy meeting.
Elsewhere in the currency markets, the Australian Dollar slipped 0.11% against its US counterpart to $0.6981 after Reserve Bank of Australia Governor Michele Bullock said underlying inflation remained uncomfortably high and that weaker domestic demand may still be needed to bring price pressures under control. The New Zealand Dollar traded at $0.5772.
Meanwhile, the Bank of England and the Bank of Japan are both widely expected to leave interest rates unchanged when they announce their policy decisions on Thursday and Friday, respectively, while continuing to signal caution over inflation.
With the Yen remaining close to last week's 40-year low against the US Dollar, the Bank of Japan is expected to keep the option of further interest rate hikes on the table in an effort to curb the currency's weakness.
However, policymakers are likely to remain deliberately vague about the timing and pace of any future tightening. So far, official verbal interventions aimed at supporting the Yen have had only a limited impact.