Dollar softens as investors weigh Middle East jitters against inflation data

The U.S. dollar edged lower on Tuesday as markets balanced escalating Middle East tensions against lingering optimism from softer U.S. inflation data. The euro rose 0.09% to $1.1424, while the yen slipped 0.09% to 162.63. The U.S. military has struck Iran for ten consecutive nights, reigniting conflict fears and typically boosting safe-haven demand for the dollar. However, active diplomatic efforts, including a reported 10-day ceasefire proposal from mediators to Tehran, have created uncertainty. Benign U.S. inflation data last week curbed bets on further rate hikes, but the outlook remains murky due to potential disruptions to shipping through the Strait of Hormuz and oil market volatility. Brent crude, though down 1.1% on the day, has surged nearly 21% in July. Traders still expect at least one Fed rate hike this year. The U.S. dollar index dipped 0.05% to 100.9. Separately, the Canadian dollar steadied after a new U.S. 50% tariff on Canadian products. In the UK, new Prime Minister Andy Burnham and Finance Minister John Healey took office, with markets watching fiscal plans. The ECB is expected to hold rates steady this week but may hike later in the year.