US Dollar Index holds steady above 98.00 on heightened Middle East geopolitical tensions

• The US Dollar Index flat lines around 98.15 in Monday’s early European session. 

• The Fed is expected to keep interest rates steady at its June meeting.

• Heightened geopolitical tensions in the Middle East could boost the US Dollar. 

The US Dollar Index (DXY), an index of the value of the US Dollar (USD) measured against a basket of six world currencies, trades on a flat note near 98.15 during the early European session on Monday. Traders prefer to wait on the sidelines ahead of the US Federal Reserve (Fed) interest rate decision on Wednesday. Also, the developments surrounding Middle East geopolitical tensions will be closely watched. 

Based on the latest US inflation data, traders now see a nearly 80% possibility of a Fed rate cut in September, followed by another one in October, according to Reuters. Traders will take more cues from the FOMC Press Conference.  "If the Fed delivers a dovish hold as we expect, the dollar is likely to resume weakening due to the worsening fundamental backdrop in the U.S.,” said Win Thin, global head of markets strategy at Brown Brothers Harriman.

US consumer sentiment improved for the first time in six months in June as trade tensions between the United States and China eased. The University of Michigan's Consumer Sentiment Index rose to 60.5 in June from a final reading of 52.2 in May, beating the estimation of 53.5. The upbeat US economic data could lift the Greenback in the near term. 

The conflict between Israel and Iran has entered its fourth day, with both sides launching fresh missiles overnight despite world calls for negotiation and de-escalation. Any signs of escalating geopolitical tensions and risks into a broader regional conflict could boost the safe-haven flows, benefitting the USD.