Dollar in demand on rate cut delay concerns, rising risk aversion

investing.com:

Investing.com — The U.S. dollar climbed higher in early European trade Tuesday, with risk sentiment hit by increased tensions in the Middle East as well as concerns that the Federal Reserve may delay interest rate cuts .

At 04:40 ET (09:40 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.8% higher at 102.955, after having gained 0.2% overnight in subdued trading during a U.S. public holiday on Monday.

Raised tensions in the Middle East have supported the U.S. dollar, after the Houthi group said on Monday it will expand its targets in the Red Sea region to include U.S. ships after the U.S. and British strikes on its sites in Yemen.

However, the main driver of late has been expectations of when the Federal Reserve will start cutting interest rates, in effect saying the battle against inflation has been won.

Hawkish comments from European Central Bank officials on Monday have caused traders to push back against the idea of early rate cuts globally.

Attention now turns to a speech by Fed Governor Christopher Waller later on Tuesday, an influential member of the central bank’s policy-setting committee.

“Recall that he delivered the definitive and market-moving «something appears to be giving» speech in late November,” said analysts at ING, in a note. “The speech provided an important lead indicator for the Fed's dovish turn at the December FOMC meeting.”

In Europe, GBP/USD fell 0.5% to 1.2658 after the release of labor data which showed that growth in average earnings fell to 6.6% in November, a fall from 7.2% the prior month.

This will be received positively by the Bank of England, as they try to rein in one of the highest inflation rates in the G7, but Wednesday’s