The dollar stabilized during Asian trading on Tuesday, as market participants processed U.S. President Donald Trump’s declaration of a halt to a proposed military action against Iran to facilitate negotiations. The U.S. dollar index, which gauges the greenback’s strength against a basket of six currencies, increased by 0.1% to 99.076, drawing bids after breaking a five-day winning streak on Monday as concerns about an escalation in the war subsided. “The overreaction is being walked back around these headlines we saw overnight,” stated Tony Sycamore. “Market participants have grown familiar with this pattern of weekend anxieties succeeded by discussions of advancements on Monday. The yield on the U.S. 10-year Treasury bond decreased by 2.4 basis points to 4.5974%, following a peak not seen in a year, as declining oil prices alleviated concerns regarding inflation. Brent crude futures experienced a decline of 2%, settling at $109.84 per barrel.

The dollar experienced an increase over the past week due to the intensification of the conflict in the Middle East and a selloff affecting global bond markets. Investors adjusted their assessments of the risk that central banks might need to tighten monetary policy to manage inflation, particularly with the Strait of Hormuz remaining closed and disruptions in energy markets. The implied probability of a 25-basis-point hike at the U.S. central bank’s two-day meeting on December 9 stands at 37.4%, as indicated by Fed funds futures. This marks a significant increase from the mere 0.5% chance noted a month prior, based on data from the CME Group’s FedWatch tool. In relation to the yen, the U.S. dollar experienced an increase of 0.1%, reaching 158.95 yen, following the release of government data on Tuesday indicating that Japan’s economy expanded by an annualised 2.1% in the first quarter, surpassing the median market expectation of a 1.7% increase. The data “should help alleviate stagflation concerns,” analysts noted in a research report.

Japanese Finance Minister Satsuki Katayama informed on Monday that Japan is prepared to respond to excessive foreign exchange volatility, while ensuring that any intervention aimed at supporting the yen and selling dollars is executed in a manner that does not lead to an increase in U.S. Treasury yields. Investors are closely monitoring for additional indications of intervention aimed at bolstering the yen, which has shown slight strength compared to its position prior to Japanese officials’ recent market engagement, marking their initial action in nearly two years. According to central bank data, Tokyo has potentially expended close to 10 trillion yen ($63 billion) since initiating its most recent yen-buying program on April 30. The Australian dollar experienced a decline of 0.5%, trading at $0.71345, following the publication of the minutes from the Reserve Bank of Australia’s May 5 meeting.

The central bank determined that interest rates are currently restrictive after implementing three hikes this year, allowing it to monitor the developments of the Iran war while evaluating potential impacts on growth and inflation trends. The minutes of the RBA’s May meeting confirmed that the Board considered the option of leaving rates on hold alongside a 25bp hike,” a report stated. “Looking ahead, the Board didn’t provide any clear signal as to its next move,” they said, adding “we still think the RBA will err on the side of tighter policy.” The kiwi declined by 0.4% to $0.5854, moving in tandem with the Australian dollar. The euro experienced a decline of 0.1%, trading at $1.1644, whereas the British pound saw a decrease of 0.2%, positioned at $1.3411. In offshore trade, the U.S. dollar appreciated by 0.1% against the Chinese yuan, reaching a value of 6.8031 yuan.