* Dollar eases after Iran and Israel halt strikes on each other

* Rate divergence back in focus after Friday's strong U.S. data

* Euro/dollar also supported by expectations of hawkish ECB

* Yen remains in intervention territory near 160 per dollar (Adds ​comments, updates prices)

By Stefano Rebaudo

June 9 (Reuters) - ⁠The U.S. dollar fell on Tuesday, as hopes for a deal to reopen the Strait of Hormuz outweighed expectations of higher U.S. interest rates ‌ahead of fresh U.S. data later this week.

The U.S. economy is relatively insulated from energy shocks compared to other countries, which is one of the reasons why investors have flocked to the ​safe-haven dollar during the Iran conflict, while selling the euro and the Japanese yen.

Conversely, investors tend to sell the greenback against the euro and yen when developments in the Middle East ​point ​to a possible peace deal, which could ease oil prices.

U.S. Treasury yields surged on Friday after data showed U.S. employers added far more jobs than expected in May, bolstering bets that the Federal Reserve will raise rates later this year.

“After Friday, the market's growth-driven narrative may have given way ⁠to a real rates driven narrative,” Thierry Wizman, global forex and rates strategist at Macquarie Group, said.

Investors are now keenly eyeing U.S. inflation data on Wednesday for further clues to the Fed's next moves. Fed funds futures traders now see a 70% chance of a hike by December, according to CME FedWatch.

Iran and Israel said on Monday they had halted attacks on each other after an appeal from U.S. President Donald Trump, though Tehran warned it would resume hostilities if Israel continued to hit ​Hezbollah in Lebanon.

“A situation of ‘no ‌deal, no war’ ⁠between the U.S. and Iran may ⁠not be able to last indefinitely,” Macquarie Group’s Wizman argued. “The U.S. administration would want to reopen the Strait of Hormuz by force at some point, presumably as the global visible ​inventory of crude oil depletes below threshold viable levels.”

The U.S. dollar index, which measures the greenback against a basket of currencies ‌including the yen and the euro, was down 0.24% at 99.77, after reaching 100.21 on Monday, its highest ⁠since April 6. It hit 100.64 at the end of March, its highest since May 2025.

 

CONCERNS OVER HAWKISH ECB

The euro was up after a pause in direct strikes in the Middle East, with investors turning their attention to the upcoming European Central Bank policy meeting, where a 25-basis-point rate hike is widely expected.

The single currency was 0.1% stronger at $1.1545 after hitting a two-month low in the previous session.

Markets will be closely watching the ECB's policy announcement on Thursday for any signals on the rate outlook, with some analysts noting that the central bank is unlikely to push back against current rate expectations. Traders have factored in two additional rate hikes beyond the expected move this week.

"The risk this week is that (ECB) policymakers paint an even more hawkish picture, with projections showing a larger inflation overshoot, language suggesting the risk of a need for a sustained tightening process rather than a one-time adjustment," said Laura Cooper, global investment strategist at Nuveen.

Resilient growth and ‌persistent inflationary pressures are likely to keep market expectations tilted towards further U.S. rate hikes, even as ⁠a potential U.S.-Iran deal could provide some relief.

The Japanese yen weakened to as low as 160.22, continuing to hover ​around the 160 level widely seen as a line in the sand for potential official intervention.

A Bank of Japan rate hike at the June 16 policy meeting is now almost fully priced in, meaning it is unlikely on its own to trigger a significant reversal in yen weakness if delivered.

"Failure to follow through and hike rates again would trigger ​a much bigger negative ‌market reaction for the yen, adding to investor concerns that the BoJ is behind the curve in fighting inflation risks ⁠in Japan," said Lee Hardman, senior currency economist at MUFG.

The risk-sensitive ​Australian dollar was up 0.14% at $0.7054.