Iran optimism 'fails to halt the Dollar in its tracks', hawkish Fed keeps the greenback supported

The seemingly upbeat news out of Iran failed to halt the dollar in its tracks, with the US currency ending London trading higher against most major currencies on Tuesday.

The greenback has been well supported since the Fed’s September meeting, as investors ramp up expectations that the FOMC will follow up last week’s rate hike with another in either October and/or December.

Communications from Fed members since then have been equally hawkish with officials Goolsbee, Musalem and Collins all warning over inflation risks in their recent remarks. All three members are seen as sitting in the neutralto-dovish end of the FOMC voting spectrum, meaning that their hawkish remarks carry genuine weight.

We expect the dollar to be driven largely by geopolitics this week, with any indication that an end to the Iran war stalemate may not be all that far away likely to trigger a retracement in recent gains in the greenback.

This afternoon’s PMI figures for September will also be closely watched by market participants, with economists eyeing a modest drop in activity relative to August.