The U.S. dollar strengthened broadly on Tuesday as talks to end the war in the Middle East showed no signs of progress, pushing oil prices higher and worrying investors that interest rates may need to stay higher to tackle inflationary pressures, Reuters reported.
Investors now fear that the ceasefire that has been in place since April 7 could be in danger and hostilities could resume in the conflict, which began at the end of February, killing thousands and halting vital energy flows.
With the crucial Strait of Hormuz staying largely closed, Brent crude futures were up 0.6% at $104.88 a barrel. U.S. West Texas Intermediate was at $98.93 per barrel, up 0.89% on the day.
U.S. President Donald Trump said the ceasefire with Iran was "on life support" after the latest back and forth on a proposal to end the war made clear the two sides were still far apart on a number of issues.
The currency market was in a risk-off mood, with focus shifting to Trump's visit to China later this week as well as the U.S. inflation report due later in the day. U.S. Treasury Secretary Scott Bessent is also in Asia for meetings in Japan and South Korea.
The euro weakened 0.24% to $1.1754, while sterling last bought $1.3575, down 0.26% on the day. The dollar index , which measures the U.S. currency against six others, was at 98.17, up 0.2%.
The dollar initially benefited from safe haven flows when the war first broke out but has since given up much of those gains and remains choppy on shaky prospects of a peace deal and a ceasefire that appears to be hanging by a thread.
Christopher Wong, currency strategist at OCBC, said Trump's rejection of Iran's response to the U.S. peace proposal has kept markets cautious and helped to put a floor under the dollar.
"Still, USD gains were contained, suggesting markets are not yet treating the latest headlines as a full risk-off shock," Wong said, noting a formal breakdown in diplomatic discussions or fresh military escalation could bring a bigger reaction.
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