The US Dollar Index (DXY) is trading steadily around the mid-98.00 range during Tuesday’s Asian session, May 5, pausing after two consecutive days of gains. While momentum remains constructive, traders are holding back from aggressive positioning as they wait for a decisive move above the closely watched 200-day Simple Moving Average, a level that could confirm a stronger bullish continuation.

Tensions in the Middle East are playing a central role in supporting the US Dollar. A fragile ceasefire between the United States and Iran is showing signs of breakdown following renewed attacks in the Persian Gulf. Reports from the United Arab Emirates and South Korea highlight disruptions to shipping routes, while fires at key oil infrastructure have intensified concerns over supply stability. Adding to the rhetoric, Donald Trump issued a strong warning against any threats to US-protected vessels operating in the region.

This escalation reinforces the Dollar’s appeal as a global safe-haven asset. At the same time, rising crude oil prices, driven by geopolitical uncertainty, are increasing inflation risks. This dynamic is strengthening expectations that the Federal Reserve may maintain a tighter monetary stance for longer.

Market pricing reflects this shift. According to the CME Group’s FedWatch Tool, the probability of a rate hike by year-end has climbed to around 35%, a sharp jump from below 10% just days ago. This repricing of expectations continues to provide a solid фундамент for the Dollar’s upward bias.

Looking ahead, traders are turning their attention to key US economic releases, including ISM Services PMI, JOLTS Job Openings, and New Home Sales data. Additionally, speeches from Federal Open Market Committee officials could influence rate expectations further. However, the main focus of the week remains the upcoming Nonfarm Payrolls report, which is expected to offer deeper insight into the strength of the US labor market.

In currency performance, the US Dollar has emerged as the strongest against major peers this week, particularly outperforming the Australian Dollar. This broad-based strength highlights sustained demand for the Greenback amid a mix of geopolitical risk and shifting monetary policy expectations.