The U.S. Dollar Index hovered near 101.50, while peer currencies traded largely flat

The U.S. dollar held near a one-month high on Tuesday, maintaining its footing against other currencies as expectations of higher-for-longer short-term interest rates countered a recent drop in crude oil prices.

The U.S. Dollar Index hovered near 101.50, while peer currencies – including the euro, the British pound, the Japanese yen, and the Swiss franc – traded largely flat. Currency desks adopted a cautious stance ahead of a number of central bank policy updates.

Although crude prices extended their decline following signals of potential diplomatic progress between Tehran and Washington, the dollar remained firm.

The U.S. currency continues to draw structural support from sticky core inflation expectations and higher Treasury yields, with markets continuing to price in a nearly 38% probability of a 25-basis-point interest rate hike by the local central bank on Wednesday.

While the central bank is widely expected to hold benchmark rates steady this week, traders are betting that short-term interest rates will remain elevated for longer to anchor lingering price pressures stemming from recent trade tariffs and supply constraints.

The dollar remains bid as investors position for a hawkish Fed tomorrow, if not a rate hike, said Chris Turner, global head of markets at ING.

It feels like the FX market is taking the possibility of a Fed hike tomorrow more seriously. The Fed’s lack of communication has certainly created fertile ground for such speculation, he said.

The euro traded flat near $1.1370, keeping its distance from recent highs as traders balanced solid Eurozone composite survey data against hawkish commentary from European Central Bank officials.

ECB Governing Council member Peter Kazimir noted earlier that a September rate hike remains necessary even if Eurozone economic growth accelerates, signalling that European borrowing costs will also stay elevated.

Asian currencies saw mixed trading, with rupiah remaining under pressure following the unexpected resignation of Bank Indonesia Governor Perry Warjiyo earlier in the week.