• The US Dollar edges higher as rising Middle East tensions boost demand for the safe-haven Greenback.
• Oil prices remain near a one-month high, keeping inflation concerns alive.
• Fed officials enter their blackout period before next week's policy meeting.

The US Dollar Index (DXY) edges higher on Monday as heightened tensions in the Middle East drive demand for the safe-haven Greenback. At the time of writing, the index, which tracks the Greenback’s value against a basket of six major currencies, trades around 100.95 after recovering from an intraday low of 100.65.

US President Donald Trump wrote on Truth Social on Monday, "Every time Iran kills an American Soldier they will pay for that killing many times over!" His remarks came as the United States carried out a ninth consecutive night of strikes against Iran.

Tensions rose further after Reuters reported that Yemen’s Iran-aligned Houthis had declared an immediate naval blockade against Saudi Arabia, raising fresh concerns over regional shipping and energy supplies.

However, diplomatic channels remain open. Reuters reported that mediators had proposed a 10-day pause in strikes to explore ways to revive the interim US-Iran agreement. Officials from both countries also signalled that they were still open to negotiations.

Oil prices saw sharp two-way swings as markets reacted to the conflicting headlines. West Texas Intermediate (WTI) crude Oil trades around $82 after recovering from an intraday low of $79.48 and holds close to its highest level in more than a month.

The rebound in Oil prices keeps energy-driven inflation risks elevated and supports expectations that the Federal Reserve (Fed) could raise interest rates later this year.

According to the CME FedWatch Tool, markets assign around a 63% probability to a Fed rate hike in September. The possibility of tighter monetary policy, combined with demand for the US Dollar during periods of geopolitical tension, keeps the DXY supported.

The US economic calendar is relatively quiet this week. Initial Jobless Claims are due on Thursday, followed by preliminary July Purchasing Managers Index (PMI) data on Friday.

With Fed officials observing the blackout period before next week’s policy decision, the Greenback will take its cues mainly from developments in the Middle East.