Dollar steadies as fragile ceasefire fuels uncertainty ahead of key data

The dollar index held broadly steady on Thursday, as a fragile ceasefire between the US and Iran kept investor sentiment cautious. The stabilization follows Wednesday’s decline, when easing geopolitical tensions reduced safe-haven demand and pushed the greenback to a one-month low. However, the tentative nature of the agreement has prevented an extension of that move.

Reports that oil tanker transit through the Strait of Hormuz remains constrained, alongside some ongoing tensions in the Middle East, have kept markets on edge. This uncertainty spilled over into bond markets, with Treasury yields seeing some volatility as investors balance the potential for lower inflation risks against the possibility of renewed tensions.

On the monetary policy front, the Federal Reserve’s minutes revealed concerns about inflation and the job market, reinforcing a data-dependent stance. In this regard, interest rates are still expected to remain unchanged for some time with potential cuts next year, which could weigh on the dollar and yields should inflation decline toward the Fed’s target.

Attention now turns to the macroeconomic data releases today, including GDP, PCE and personal income and spending figures. These releases could be pivotal in shaping expectations of the Fed’s future actions, potentially injecting fresh volatility into both Treasury yields and the dollar.