The US Dollar is advancing across the board on Tuesday, pressuring the Pound, Euro, and Yen alike. GBP/USD trades with mild losses near 1.3550, EUR/USD has slipped to around 1.1600, down nearly 0.10% on the day, and USD/JPY has climbed to roughly 159.85. Two forces are driving the move together: escalating tension in the Middle East, and rising Fed rate-hike bets following Chair Kevin Warsh's hawkish Jackson Hole remarks last Friday.

Middle East tensions escalate sharply

US President Donald Trump threatened Monday to forcefully strike Iran after the US and Iran exchanged fire for the first time in a month. Iran's Revolutionary Guard Corps (IRGC) said it had targeted US military bases in two Middle Eastern countries in response to the initial US strikes. Late Monday, the United Kingdom Maritime Trade Operations (UKMTO) reported that a tanker had been struck by three projectiles while sailing out of the Strait of Hormuz, according to Reuters. Rising Middle East risk is boosting safe-haven flows into the Dollar, acting as a headwind for nearly every major currency.

Warsh's hawkish tone keeps lifting Fed bets

Compounding the geopolitical pressure, Fed Chair Warsh warned Friday that inflation is not slowing significantly and that the central bank has "work to do" unless policymakers become confident that it is. Traders have raised their bets on a September rate hike in response. Attention now turns to Tuesday's US ISM Manufacturing PMI report, with Friday's US employment data for August looming as the week's main event — a weaker-than-expected jobs print could drag the Dollar back down in the near term.

Sterling: BoE tightening bets firm, budget in focus

On the Pound side, Scotiabank strategists note that market pricing remains firmly tilted toward further Bank of England (BoE) tightening, with investors assigning roughly a 60% chance of a 25-basis-point hike at the next BoE meeting on September 16, and a cumulative 36 basis points of tightening priced in by year-end. They add that the UK's October 28 budget will remain a key focus for markets over the coming months, underscoring how central fiscal signals have become to the UK policy outlook.

The Yen: a 30-year bond yield record and US pressure on the BoJ

USD/JPY's move has its own distinct driver. Japan's 10-year government bond yield hit 3% for the first time since 1996, after US Treasury Secretary Scott Bessent signaled that Washington wants the Bank of Japan (BoJ) to raise interest rates more aggressively. Bessent said Tuesday he believes the Japanese government and central bank will take action leading to a stronger Yen, according to CNBC — though the currency has remained weak against the Dollar despite those comments.

Japanese Finance Minister Satsuki Katayama said she met with Bessent and agreed that orderly Yen movement is critical for global market stability, with both countries confirming continued cooperative measures toward that goal. Scotiabank notes that the relative central bank policy outlook is front and center heading into the BoJ's September 18 decision, highlighting media reports that Bessent expects Governor Ueda "to do the right thing." BoJ Board member Takata is scheduled to speak later this week, an appearance that could further shape rate-hike expectations.

The Euro: German inflation raises the stakes for Eurozone HICP

EUR/USD is struggling to build on its overnight bounce from the 100-day Simple Moving Average near 1.1575-1.1580, a one-and-a-half-week low, as traders now turn to the preliminary Eurozone Harmonized Index of Consumer Prices (HICP). Economists expect Eurozone inflation to move higher in August amid elevated energy prices, making a September European Central Bank (ECB) rate hike all but certain. That view was reinforced by Monday's German CPI data, which rose to 2.9% year-on-year in August from 2.8% in July. ECB Executive Board member Isabel Schnabel has already made a clear case for another rate increase, which suggests the immediate market reaction to Tuesday's HICP print may be relatively muted.

Later in the North American session, traders will also watch the US ISM Manufacturing PMI and JOLTS Job Openings data. Warsh's hawkish comments, combined with the ongoing geopolitical uncertainty, have revived safe-haven demand for the Dollar following its modest decline the previous day — though USD bulls may hold off on aggressive bets until Friday's Nonfarm Payrolls report delivers a clearer picture.

What this means for the Dollar

Tuesday's Dollar strength is being driven by two reinforcing forces rather than one: a genuine safe-haven bid from Middle East escalation, and a genuine repricing of Fed rate-hike odds following Warsh's hawkish Jackson Hole remarks. That combination is proving broad enough to pressure the Pound, Euro, and Yen simultaneously, even though each pair carries its own separate central bank narrative underneath. Friday's US jobs report looks likely to be the week's real tie-breaker for how much of this strength holds.

What traders should prepare for

  • Tuesday's US ISM Manufacturing PMI and JOLTS Job Openings data as the next near-term Dollar catalysts

  • Friday's US Nonfarm Payrolls report for August, the week's headline event for Fed policy expectations

  • The preliminary Eurozone HICP release, expected to reinforce the case for a September ECB hike

  • Further escalation risk around the Strait of Hormuz and any additional US-Iran military exchanges

  • Commentary from BoJ Board member Takata later this week, ahead of the September 18 policy decision

  • The UK's October 28 budget, which markets are treating as a key input for BoE policy over the coming months

Bottom line: The Dollar's advance right now is being fed by both fear and rate expectations at once — a combination that's proving hard for any single currency to resist until Friday's jobs data changes the calculus.