US Dollar Index (DXY) recovery loses steam above 98.00 despite the risk-off mood

• The languishes near multi-week lows despite the higher demand for safe havens.

• Fears of escalating tensions in the Middle East have crushed investors' appetite for risk.

• Market movements remain subdued ahead of Wednesday's Fed decision.

Fears of an escalating war between Israel and Iran are boosting demand for safe havens on Tuesday, but the US Dollar is failing to draw any significant support from the context. The US Dollar Index is struggling to extend gains past the 98.00 level and remains dangerously close to the multi-year lows, at 97.50 hit last week.

The Dollar bounced up on Monday and extended gains on early Tuesday trading, with investors rushing for safety as US President Trump called the National Security Council and left the G7 meeting one day ahead of schedule.

Trump denied that his hasty departure was related to a cease-fire in the Middle East, shortly afterwards, and affirmed that it was due to a “much bigger” reason. The comments have not helped to restore market sentiment.

Weak US data is weighing on the US Dollar

The Dollar is suffering as recent US data reveals the negative impact of Trump’s erratic trade policy. Later today, US Retail Sales are expected to have contracted at a 0.7% pace in May, following a 0.1% increase in April.

These figures come after a string of downbeat data, the latest being a larger-than-expected deterioration in the New York manufacturing activity, seen on Monday, which has been feeding hopes of further Fed easing after the summer.

Market volatility, however, remains subdued with all eyes on the outcome of the Federal Reserve’s monetary policy meeting, due on Wednesday. The summary of economic projections and the dot plot will help to define the bank’s stance and will set the USDollar’s near-term direction.