US Dollar Index gains as US-Iran tensions escalate, Treasury yields rise

The US Dollar Index rebounds on Tuesday, erasing Monday's losses as hawkish Fed bets and rising yields drive demand.
Fresh US-Iran military strikes lift Oil prices and add a safe-haven bid to the Greenback, while intensifying inflation concerns.
Traders await US employment data later this week.

Vishal Chaturvedi FXStreet

The US Dollar Index (DXY) edges higher on Tuesday, reversing all of the previous day’s losses as hawkish Federal Reserve (Fed) expectations and rising US Treasury yields provide a strong tailwind. At the same time, fresh fighting between the United States (US) and Iran drives some safe-haven flows toward the Greenback. At the time of writing, DXY trades around 99.71, up roughly 0.30% on the day.

Reuters reported that the US military began striking Islamic Revolutionary Guard Corps (IRGC) targets inside Iran at 16:00 GMT on Tuesday. Iranian media reported explosions on Qeshm Island and in the southern cities of Bandar Abbas and Chabahar.

US President Donald Trump confirmed the operation in a Truth Social post, saying that the US was “striking Iranian targets near the Strait of Hormuz.” Trump warned that “if the failed Nation of Iran retaliates,” it would be “hit again at a much harder and higher level.”

Oil prices moved higher in reaction to the latest escalation, with West Texas Intermediate (WTI) climbing to its highest level since July 24 and trading around $88.70 per barrel. Higher energy prices add to inflation risks at a time when the Fed is already struggling to bring inflation sustainably back toward its 2% target.

Fed Chair Kevin Warsh’s tough rhetoric at the Jackson Hole Symposium revived expectations of an interest rate hike as soon as this month. Warsh warned that the central bank would have more work to do if policymakers were not confident that inflation was returning to target.

US Treasury yields rise as persistent inflation concerns and hawkish Fed expectations fuel bets on higher borrowing costs, with the benchmark 10-year yield trading around 4.80%, its highest level since January 2025.

According to the CME FedWatch Tool, traders see around a 68% probability that the US central bank will increase rates at its September 15-16 meeting, up from roughly 40% a week ago.

Softer US data provide little relief to Dollar bears

Softer-than-expected US economic data released on Tuesday briefly weighed on the Greenback but failed to generate sustained selling pressure. The ISM Manufacturing Purchasing Managers Index (PMI) fell to 54.6 in August from 55.6 in July, missing the market forecast of 55.2. JOLTS Job Openings rose to 7.271 million in July from 7.182 million but fell short of the 7.3 million forecast.

Attention now shifts to the ADP Employment Change report on Wednesday and the Nonfarm Payrolls (NFP) report on Friday. Strong employment figures could reinforce expectations of a September rate hike, while a weak report may challenge the Greenback’s advance.

Economic Indicator

ADP Employment Change

The ADP Employment Change is a gauge of employment in the private sector released by the largest payroll processor in the US, Automatic Data Processing Inc. It measures the change in the number of people privately employed in the US. Generally speaking, a rise in the indicator has positive implications for consumer spending and is stimulative of economic growth. So a high reading is traditionally seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.

Why it matters to traders?

Traders often consider employment figures from ADP, America’s largest payrolls provider, report as the harbinger of the Bureau of Labor Statistics release on Nonfarm Payrolls (usually published two days later), because of the correlation between the two. The overlaying of both series is quite high, but on individual months, the discrepancy can be substantial. Another reason FX traders follow this report is the same as with the NFP – a persistent vigorous growth in employment figures increases inflationary pressures, and with it, the likelihood that the Fed will raise interest rates. Actual figures beating consensus tend to be USD bullish.

Author

Vishal Chaturvedi

FXStreet

I am a macro-focused research analyst with over four years of experience covering forex and commodities market. I enjoy breaking down complex economic trends and turning them into clear, actionable insights that help traders stay ahead of the curve.

GBP/USD weakens to two-week lows near 1.3520

GBP/USD trades on the back foot, returning to the low 1.3500s, or two-week troughs, on Tuesday. Cable’s bearish price action follows decent gains in the Greenback at the time when investors assess latest US data releases and the persistent uncertainty in the US-Iran crisis.

EUR/USD remains offered; breaks below 1.1600

EUR/USD now accelerates its daily correction, breaching below the key 1.1600 support level on Tuesday. The pair’s daily correction comes on the back of a decent bounce in the US Dollar despite disappointing US data releases and amid persistent geopolitical concerns.

No reaction from Gold; still targets $4,300

Gold extends Monday’s pessimism and slipped back to nearly three-week lows just above the $4,300 mark per troy ounce on Tuesday. The US Dollar’s rebound couple with rising US Treasury yields weigh on the precious metal despite tensions in the Middle East appear far from abated.

Crypto Today: Bitcoin, Ethereum, XRP struggle to extend gains despite ETF inflows

Bitcoin stalls while holding above $78,000 support as ETF inflows return. Ethereum takes a breather around $2,450 amid sustained institutional support. XRP remains pressured as the 200-day EMA provides immediate support.

Global bond market sell off haunts markets

Global sovereign bonds are selling off as we start a new month. The UK is, unsurprisingly, taking the biggest hit. Two and 10-year yields rose by 10 basis points at one point on Tuesday, and are currently higher by 7 and 8bps respectively.

Diesel’s record $100 warning: The oil shock hiding in plain sight

The Oil market may look calmer than it did a few months ago, but diesel is sending a very different message. The US diesel crack spread, the premium of ultra-low sulphur diesel futures over WTI, recently surged above $100 per barrel for the first time, reaching an intraday record of just over $102.00.