Dollar Lingers Near Six-Week Low as Mideast Diplomacy Eases Haven Demand

The U.S. dollar hovered near a six-week low on Tuesday as reports of diplomatic progress in the Middle East dampened its safe-haven appeal, though persistent expectations for another Federal Reserve interest rate hike provided a floor for the currency.

Geopolitical Thaw Weighs on Greenback

The U.S. Dollar Index, which measures the currency against a basket of major peers, edged down 0.15% to 99.58, according to data from Investing.com. The modest decline came amid a cautious improvement in market risk appetite.

Driving the sentiment were reports that Qatari mediators and U.S. officials have drafted a provisional proposal aimed at de-escalating the U.S.-Iran conflict. A key component of the reported plan is to ensure safe passage for shipping through the critical Strait of Hormuz.

The diplomatic developments helped push international crude oil prices lower for a third consecutive session. This provides a significant tailwind for energy-importing economies, particularly in Europe and Asia.

Fed Policy Expectations Provide Support

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Despite the pressure from improved risk sentiment, the dollar's losses were capped by resilient U.S. economic fundamentals. Traders widely anticipate that the Federal Reserve may implement another 25-basis-point interest rate increase at its policy meeting on September 16.

Investors are now looking ahead to crucial U.S. labor market data for further clues on the Fed's path. The ADP private employment report on Wednesday and the official nonfarm payrolls data on Friday will be closely watched for signs of cooling that could deter the central bank from further tightening.

Key Moves in Asian Currencies

In other major currency news:

• The Japanese yen held onto recent gains made after last week's joint intervention by U.S. and Japanese monetary authorities. The yen received further support after U.S. Treasury Secretary Scott Bessent stated in a CNBC interview that Washington would do "whatever it takes" to support Japan's currency stabilization efforts, as cited by the source.
• The Indian rupee held steady after the Reserve Bank of India (RBI) unanimously voted to keep its benchmark repo rate unchanged at 5.25%. While citing global uncertainty and high food inflation, the RBI upgraded its GDP growth forecast for the 2026-2027 fiscal year to 6.7%, noting that falling oil prices were easing external pressures.