US Dollar Index (DXY) climbs near 99.35 as Iran denies US talks

The US Dollar Index (DXY), which tracks the Greenback against a basket of currencies, regains positive traction following the previous day’s downfall to a nearly two-week low and climbs to the 99.35 area during the Asian session on Tuesday. Moreover, the fundamental backdrop seems tilted in favor of the US Dollar (USD) bulls.

President Donald Trump said on Monday that the US had held productive conversations with Iran and that a deal could be reached soon. The optimism, however, fades rather quickly after Iran denied that it had held talks with the US to end the war in the Gulf. Adding to this, reports of strikes on Iran’s gas infrastructure raised the risk of a further escalation of tensions in the Middle East, which triggers a fresh wave of the global risk-aversion trade and benefits the USD’s global reserve currency status.

According to the Iranian semi‑official Fars news agency, a gas company office and a pressure‑reduction station were hit in Iran’s central city of Isfahan. Adding to this, a projectile reportedly struck a gas pipeline feeding a power station in Khorramshahr. Moreover, a severe disruption of energy trade due to the effective closure of the Strait of Hormuz and assists Crude Oil prices to catch fresh bids. This revives inflation fears and hawkish Federal Reserve (Fed) expectations, underpinning the USD.

In fact, the CME Group’s FedWatch Tool indicates minimal to no chance of a rate cut by the end of this year. The outlook, in turn, leads to a modest rise in the US Treasury bond yields and turns out to be another factor lending support to the Greenback. The aforementioned supportive factors validate the near-term positive outlook for the buck and support the case for a further intraday appreciating move for the DXY. Traders now look forward to the release of the global flash PMIs for some impetus.