Forex Today: US Dollar recovers modestly as markets assess developments in Mideast

Here is what you need to know on Tuesday, August 25:

The US Dollar (USD) stays resilient against its major rivals early Tuesday after posting small gains on Monday. Market participants await mid-tier data releases from the US, including the Conference Board's Consumer Confidence Index for August and July New Home Sales, while keeping a close eye on the headlines surrounding the crisis in the Middle East.

The US Treasury Department announced new sanctions on 60 individual, entities and vessels as part of its expanded effort to put economic pressure on Iran. Treasury Secretary Scott Bessent warned that if other countries do not sever business ties with Iran, they are under the risk of being forced out of the Dollar-based financial system. Bessent, however, declined to say which specific countries would be targeted or what type of penalties would be imposed. Meanwhile, Al Jazeera reported Pakistan’s interior minister saying that significant progress has been made during talks with Iran’s president to restore a previous Memorandum of Understanding with the US.

The USD Index clings to marginal gains above 99.00 in the Europena morning on Tuesday, while US stock index futures rise between 0.2% and 0.5%.

USD bears gain traction as positioning flips and options chase the move

According to TD Securities, the Dollar’s recent slide is being reinforced by more than just softer US data and the “gradual pricing out of Fed rate hike expectation.” The bank argues that “increased financial repression and US institutional credibility risks further cemented the bearish USD momentum,” suggesting the underlying trend has become more entrenched.

Strategists at the firm also highlight a notable shift in investor positioning, noting that “USD positioning has just flipped from long to short and has more room to grow.” They judge that “broad USD downtrends remain intact except in select pairs such as USDCAD,” underscoring that the move is not yet seen as exhausted. In options markets, TD points out that “front-end risk reversals broadly flipping toward USD puts vs G10 currencies amid rising implied vols suggest investors are chasing the USD lower,” reinforcing the view that bearish sentiment on the Dollar is spreading across the complex.

EUR/USD extends its downward correction and trades near 1.1650 in the European morning on Tuesday after losing about 0.15% on Monday. The European economic calendar will feature IFO - Current Assessment data for August.

GBP/USD remains in a consolidation phase above 1.3600 for the second consecutive day on Tuesday and move sideways in a narrow channel.

USD/JPY inches higher in the European session and closes in on 159.50.

AUD/USD struggles to keep its footing and trades marginally lower on the day below 0.7150 after cosing in negative territory on Monday. In the early trading hours of the Asian session on Wednesday, July Consumer Price Index (CPI) data from Australia will be watched closey by investors.

Gold (XAU/USD) advanced to its highest level since mid-May near $4,700 during the Asian trading hors on Tuesday but failed to preserve its bullish momentum. At the time of press, XAU/USD was trading in the red below $4,650.