The US dollar rose against most major currencies on Tuesday and remained on track for monthly gains, supported by growing market concerns over further monetary tightening from the Federal Reserve.

The US Dollar Index, which measures the greenback against a basket of six major currencies, traded at 101.34, close to the 13-month high reached last week.

As a result, the dollar is on course to post a gain of around 2.5% in June, marking its strongest monthly performance since July 2025.

Iran developments

Investors are also closely monitoring developments in the Gulf region ahead of this weeks key US employment report.

The United States and Iran exchanged fresh attacks over the weekend before agreeing to halt hostilities and hold talks in Qatar on Tuesday. The developments have kept investors cautious about the durability of the ceasefire agreement while contributing to higher oil prices.

Federal Reserve

Rising inflation pressures, combined with the unexpectedly hawkish start to Federal Reserve Chair Kevin Warshs tenure, have reshaped market expectations for interest rates this year.

At the same time, the AI-driven rally in US equities continues to attract significant capital inflows into American markets.

Jane Foley, Head of FX Strategy at Rabobank, said: This is very significant because since April of last year there has been a lot of discussion about a structural decline in the dollar. Even if you strongly believe in that view, you still have to acknowledge that there is room for a cyclical rally in the currency.

She added: That is exactly what we are seeing now. Part of the move reflects the fact that Federal Reserve rate-hike expectations were priced into markets later than those of the Bank of England and the European Central Bank, whose outlooks shifted earlier during the conflict. In addition, equity markets, particularly since the war began, have seen a clear asset-allocation bias toward the United States.

Weekly data from the US market regulator showed that investors are holding the largest net bullish position on the US dollar against major currencies since 2019, worth approximately $36.4 billion, according to data compiled by the London Stock Exchange Group.

Investors are now awaiting the US monthly employment report later this week, which could provide a clearer picture of whether current market pricing for Federal Reserve rate hikes is justified.

Money markets currently fully price in one rate hike this year, while assigning roughly a 50% probability to a second increase before year-end.