The US dollar remained under pressure as hopes of geopolitical de-escalation and progress toward a deal in the Middle East could reduce safe-haven demand.
The decline comes as US President Trump reaffirmed that the ceasefire remained in place despite the latest tensions in the Strait of Hormuz.
However, sentiment could change rapidly in reaction to any significant escalation in the region.
At the same time, a retreat in Treasury yields could also pull the dollar down, in particular if oil prices continue to decline, limiting inflation concerns in the process. In the meantime, expectations continue to point to a hold on the monetary policy front with interest rates anticipated to remain unchanged this year and the next. The cautious outlook could limit downside risks for yields and the dollar.
In addition, recent economic data showed a resilient job market, which could limit the need for rate cuts at a time when inflation remains a major concern. In this regard, attention turns to the upcoming nonfarm payrolls for more clarity regarding the strength of the labour market. A resilient reading could support yields and the dollar, while a larger-than-expected slowdown could weigh on both.