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The U.S. dollar remained largely flat on Tuesday as currency markets balanced geopolitical risks from escalating U.S.-Iran tensions against hopes for renewed diplomatic progress. The dollar index edged up just 0.04% to 98.38, reflecting cautious investor sentiment rather than decisive movement in either direction.
Tensions in the Middle East intensified after President Donald Trump confirmed the U.S. military launched a blockade of vessels departing Iranian ports. Iran responded by threatening retaliatory action against Gulf neighbors' ports following the collapse of weekend peace talks in Pakistan. Despite this, Reuters confirmed that diplomatic back-channels between Washington and Tehran remained open. Trump noted that Iran had expressed interest in reaching a deal, while Vice President JD Vance signaled expectations that the Strait of Hormuz would gradually reopen to shipping traffic.
Currency strategists warned that any breakdown in the fragile ceasefire could reignite dollar strength. U.S. crude futures reflected the uncertainty, falling over $2 to $96.99 per barrel in early Asian trading.
Against major currencies, the euro gained 0.03% to $1.1761, the Japanese yen firmed slightly to 159.3 per dollar, and the British pound rose 0.03% to $1.3508. The Australian dollar slipped 0.04% to $0.7091, while the New Zealand dollar edged up 0.03% to $0.5868.
Market attention also turned to the Bank of Japan, where the probability of an interest rate hike this month dropped sharply to 40% from 57% just days earlier. Ongoing geopolitical volatility has clouded Japan's economic outlook, prompting BOJ Governor Kazuo Ueda to emphasize caution. Analysts noted that if the BOJ opts to hold rates, the dollar-yen pair could break above the psychologically critical 160 threshold, potentially triggering currency intervention.
In digital assets, Bitcoin climbed 1.70% to $74,438.67, while Ethereum surged 5.32% to $2,373.32, offering a notable contrast to the subdued mood in traditional forex markets.
