Easing inflation fears from potential Iran talks pull down Treasury yields and the dollar

The U.S. dollar index declined, hovering near multi-week lows. Signals emerged that diplomatic talks between the U.S. and Iran could resume. Improved diplomatic prospects eased concerns about prolonged oil supply disruptions. Oil prices pulled back slightly on improved Middle East diplomacy outlook. Lower oil price pressure contributed to a moderation in near-term inflation expectations. Softer inflation expectations led to a decline in long-term U.S. Treasury yields. Lower yields reduced the attractiveness of dollar-denominated assets for income-seeking investors. Monetary policy expectations softened, with markets pricing in less aggressive tightening ahead. The dollar faces further pressure if upcoming producer price data comes in weak or if Fed officials signal caution. A weaker-than-expected producer price index would likely weigh on Treasury yields and further undermine the dollar.