US dollar hits one-month high as Fed rate hike remains possible

The US dollar rose to its highest level in a month on Tuesday as traders continued to assess the slim but lingering possibility of an interest rate hike at the upcoming Federal Reserve meeting, even as falling oil prices eased some inflation concerns.

The dollar index, which measures the greenback against a basket of currencies including the yen and euro, edged up 0.03 percent to 101.55, while the euro slipped 0.01 percent to $1.1366.

Against the yen, the dollar gained 0.05 percent to 163.82, while the British pound fell 0.02 percent to $1.3284.

Although a pause in US strikes on Iran led to lower oil prices and somewhat eased inflation worries, US Treasury yields only dipped slightly compared to moves in other markets overnight.

Chris Weston, head of research at Pepperstone, said, "The lack of aggressive buying at the short end of the US Treasury yield curve has helped maintain strong support for the US dollar."

The Federal Reserve will hold a two-day monetary policy meeting ending on Wednesday. A growing number of major brokerage firms believe there is a real chance the Fed will raise rates this week, given the sharp rise in oil prices over the past month and escalating tensions in the Middle East.

The CME Group's FedWatch tool indicates a 36.3 percent probability that the Fed will raise rates by at least 25 basis points at its policy announcement, up from 16 percent a week ago.

Markets are also pricing in an 81 percent chance of a rate hike at the central bank's September meeting.

The Bank of England and Bank of Japan are widely expected to keep interest rates unchanged at their meetings on Thursday and Friday, respectively, maintaining a cautious stance on inflation.

Among other major currencies, the Australian dollar slipped 0.11 percent against the US dollar to $0.6981, while the New Zealand dollar lost 0.12 percent to $0.5766.

In cryptocurrencies, Bitcoin dropped 1.88 percent to $63,694.59, while Ether fell 2.83 percent to $1,890.30.