Dollar slips as oil prices sink, bond yields stabilise

The yield on the US 10-year Treasury bond was down 5 basis points at 5.192% ​as trading resumed after Monday's bond market holiday. Brent crude futures fell 1.4% to $105.20 as traders weighed the prospect ⁠of more diesel supplies from Russia, amid an elusive "energy truce" between Moscow and Kyiv declared by US President Donald Trump.

However, the step ​has brought little respite from attacks on energy infrastructure in Ukraine. Supply risks also kept in focus in the Middle East after recent ​attacks on Saudi Arabia.

The reversal in energy costs and climbing US Treasury bond yields undermined some of the dollar's recent strength against major peers, with no sign of a safe-haven dash for the greenback as equity markets sold off. The euro appreciated 0.2% to $1.1177 on Tuesday, while the British pound was up 0.1% at $1.3219.

The ​yen strengthened 0.2% to 158.215 yen against the dollar after Bank of Japan data showed wholesale prices rose 6.8% in the year to September, ​missing a median market forecast of 7.6% but still enough to justify market fears of higher interest rates.

The Chinese yuan traded near its strongest in ‌four years, ⁠holding steady against the dollar at 6.6961 yuan in offshore trade. The Australian dollar was level at $0.6960, little changed after the release of minutes from the Reserve Bank of Australia's September board meeting that voted unanimously to raise rates for the fourth time this year.

The central bank said it still sees risks that inflation could prove more stubborn than assumed, leaving the door open for a fifth hike this year ​if needed.

"The minutes... confirmed that the ​decision... was underpinned by the ⁠Board’s view that some of the upside risks to inflation it had previously identified were materialising," Capital Economics analysts wrote in a note. The New Zealand dollar was up 0.1% at $0.5589, pulling away from an ​18-month low.

Market attention now turns to Wednesday's US CPI report, which analysts expect to reinforce expectations ​for further monetary tightening. Traders ⁠expect the Federal Reserve to sit on its hands at its next two-day meeting later this month.

Fed funds futures are pricing an implied 80.6% probability that the US central bank will remain on hold, down from 82.3% on Friday, the CME Group's Fed. Watch tool showed. "Several Fed officials ⁠have pushed ​back against a back-to-back hike at the October 28 FOMC meeting, potentially limiting the ​USD’s upside," DBS analysts wrote in a note.

"Stubborn inflation also carries political costs for Republicans by reinforcing voters’ frustration with the cost of ahead of the November 3 ​US midterm elections. "Bitcoin was down 0.4% at $82,705.08, while ether slid 1.4% to $2,481.40.