Dollar Strengthens as Fed Maintains Cautious Stance Amid Global Uncertainty

The dollar reached a seven-week high against major currencies as investors reconsider U.S. rate projections following robust job data. Traders now anticipate lesser rate cuts, with 86% chance of a 25 bps reduction by November. Tensions in the Middle East have also affected risk sentiment.

The dollar soared to a seven-week peak against leading currencies on Tuesday, as investors reevaluated U.S. interest rate prospects following strong employment numbers last week that negated expectations for substantial cuts.

Market participants have adjusted their outlook on Federal Reserve's monetary policy, with a reduced forecast of significant rate cuts this year. The CME FedWatch tool revealed a high probability of a 25 basis points reduction instead of a full rate cut in November.

This shift, combined with geopolitical tensions in the Middle East, has buoyed the dollar. Meanwhile, the Federal Reserve remains cautious in its approach, focusing on upcoming inflation data and policy meeting minutes to guide rate-cut decisions.

(With inputs from agencies.)