On Tuesday, the dollar pulled back as investors weighed the potential easing of Middle East tensions against ongoing geopolitical risks. This comes after U.S. President Trump stated that the U.S. and Israel's conflict with Iran might end sooner than previously expected, while also warning that if Iran blocked oil transport through the Strait of Hormuz, the U.S. military would escalate its actions.
The Iranian Revolutionary Guard responded by stating that the claims were "baseless" and affirmed that the blockade would continue until the U.S. and Israel cease their attacks.
In the market, risk sentiment slightly improved. Global stock markets rose, and oil prices retreated from more than three-year highs. As a safe-haven asset, the dollar weakened, with the euro rising to $1.1652 against the dollar, and the dollar falling to 157.49 yen against the Japanese yen.
The dollar index, which measures the dollar against major currencies, fell to 98.6, hitting a one-week low.
Chris Turner, head of global markets at ING, noted that the key factor the market is watching is whether the Strait of Hormuz reopens and whether Middle Eastern energy production can resume. Until there is progress in this area, the dollar is unlikely to quickly relinquish the gains of the past two weeks.
