The dollar index slipped to around 98.8 on Tuesday, declining for a second consecutive session as the yen extended its gains on expectations of more aggressive monetary tightening by the Bank of Japan and continued unwinding of carry trades. In the US, investors turned their attention to inflation data due this week, which could provide greater clarity on the interest rate outlook ahead of the Federal Reserve’s policy meeting next week. Markets are currently pricing in roughly a 60% probability of a 25-basis-point Fed rate hike next week following stronger-than-expected jobs data released on Friday. The European Central Bank is also expected to raise interest rates this week. Meanwhile, investors continued to track developments in the Middle East as renewed US-Iran fighting pushed oil prices higher, keeping inflation risks firmly in focus.