USD Corrects Lower as Middle East Fears Ease, Fed Hawkishness Lingers

The US dollar edged lower during Asian trading on Monday and Tuesday, giving back some of the gains from Friday's sharp rally. The move coincided with a perceived de-escalation in Middle East tensions, which dampened safe-haven demand for the greenback.

Despite the near-term pullback, the dollar remains supported by market expectations that the Federal Reserve will keep interest rates elevated—and could even deliver another hike—to combat persistent inflation. This hawkish backdrop may limit further downside for the USD.

Traders now watch for any fresh geopolitical headlines or US economic data that could shift the outlook for Fed policy and risk sentiment.