• US Dollar Index remains stronger near a 13-month high of 101.13.
• A hawkish Fed policy outlook offsets easing geopolitical risks in the Middle East.
• US Vice President Vance noted US-Iran negotiations have made "great progress," despite some lingering friction.

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, holds gains near a 13-month high of 101.13, reached on June 19, during the early European hours on Tuesday. Traders await S&P Global US Purchasing Managers Index (PMI) data due later in the day.

The Greenback holds its ground as traders focus on the Federal Reserve's (Fed) likely plan to keep interest rates higher for longer. This hawkish outlook effectively canceled out any downward pressure from easing geopolitical tensions between the US and Iran.

Last week’s Federal Open Market Committee (FOMC) Economic Projections report, which revealed that nine out of 19 policymakers foresee a rate increase in 2026. Momentum grew further after Kevin Warsh, presiding over his first meeting as Fed Chair, caught the market off guard by adopting a significantly more hawkish stance than anticipated.

Market pricing heavily reflects this outlook, with the CME FedWatch tool indicating an 85% probability of at least a 25-basis-point rate hike before the year ends. To gauge the next steps for US monetary policy, investors are closely watching Thursday’s release of the May Personal Consumption Expenditure (PCE) Price Index, the Fed's preferred inflation metric.

However, the Greenback's upside could be capped by a broader easing of risk aversion. This shift is tied to ongoing diplomatic progress between the US and Iran, which has helped cool global inflation fears. On Tuesday, CNBC reported that US Vice President JD Vance noted negotiations have made "great progress," despite some lingering friction. The optimism was mirrored by Iranian Foreign Minister Abbas Araghchi, who similarly confirmed that the Swiss dialogue has yielded "major progress."