The U.S. dollar edged higher Tuesday with risk sentiment remaining fragile as the Israel-Iran conflict continues, but gains are limited ahead of the start of the latest Federal Reserve meeting.
At 04:10 ET (08:10 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, rose 0.2% to 97.745.
Dollar edges higher The dollar has been helped by its safe haven status as Israel and Iran have continued to attack each other, while U.S. President Donald Trump urged Iranians to evacuate the capital Tehran after cutting short his visit to the Group of Seven summit.
White House officials clarified that the U.S. was not planning to directly involve itself in the conflict, but Trump’s comments ramped up concerns over U.S. involvement in the conflict.
That said, an Axios report showed U.S. and Iranian officials were still seeking talks over a ceasefire and a nuclear deal, with talks over the latter having largely fallen apart in recent weeks.
The situation in Israel and Iran has shown few signs of de-escalation, and while that is offering intermittent support to the dollar, it has so far failed to generate a major rebound in the greenback,” said analysts at ING, in a note.
On the economic front, the Fed is set to keep interest rates steady at the conclusion of a two-day meeting on Wednesday. But focus will be squarely on Chair Jerome Powell for any signals on the path of interest rates this year.
3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or remove ads. Investors will also be looking for progress towards trade deals on the sidelines of a Group of Seven leaders meeting in Canada this week.
“We could see most headlines centred on trade discussions, and Trump has in the past tended to turn less hawkish on protectionism after direct talks with foreign leaders. Any indications that the 90-day tariff pause will be extended should offer decent support to the dollar,” ING added.
Euro awaits ZEW release In Europe, EUR/USD edged marginally higher to 1.1562, ahead of the release of Germany’s ZEW economic sentiment for June, which is expected to show a slight improvement in confidence in the eurozone’s largest economy.
“The euro’s contribution to EUR/USD moves remains minimal, but today’s release of the ZEW survey in Germany can have some market impact,” ING added.
“We favour 1.15 rather than 1.16 as a near-term target and have a bearish bias on EUR/USD today. But the quite evident market preference to buy the dips in the pair means risks are still generally skewed to the upside.”
GBP/USD dropped 0.1% to 1.3567 ahead of the Bank of England’s latest policy-setting meeting, which concludes on Thursday.
The U.K. central bank is widely expected to keep rates on hold, following its 25 basis point cut in May, as the policymakers have to cope with a weak economy but still elevated inflation.
Bank of Japan stands pat
3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or remove ads. In Asia, USD/JPY traded 0.1% lower to 144.58, after the Bank of Japan left its benchmark policy rate at 0.5%, as widely expected.
The central bank said it will slow the pace at which it is cutting its bond buying activities from 2026. Starting from April 2026, the BOJ will cut its bond buying at a pace of 200 billion yen per quarter, compared to its current pace of 400 billion yen.
The BOJ warned that Japanese economic growth was likely to cool amid headwinds from trade tariffs and weakness in foreign economies. But the central bank still has to contend with rising domestic inflation.
USD/CNY gained 0.1% to 7.1823, ahead of a meeting of the People’s Bank of China later in the week, with the central bank expected to leave the rate unchanged after a cut earlier this year.
