Dollar holds modest gains as Middle East conflict uncertainty persists

NEW YORK – The dollar clung to modest gains against major currencies on Tuesday, as investors’ appetite for riskier assets remained subdued amid evolving developments in the
Middle East conflict.

The dollar, which surged in recent sessions after US-Israeli strikes on Iran sent oil prices soaring, gave up some of those gains after President Donald Trump suggested on Monday the conflict could end sooner than expected.

Trump said the war could end well before the timeline he initially laid out, but threatened to escalate attacks should Tehran block oil shipments from the Strait of Hormuz.

Trump’s comments helped ease concerns, reducing buying pressure on the dollar and sending oil prices down about 15% on Tuesday, a day after they soared to their highest levels since 2022.

“I think this is largely a reflection of the FX complex reacting to the easing in energy prices, which, if prolonged, could lessen the inflationary implications of the current commodity shock, thus lessening some degree of pressure in terms of heavy energy-importer economies,” Michael Brown, senior research strategist at Pepperstone in London, said.

The euro was 0.1% lower on the day at USD 1.16252 after sinking to a more than three-month low of USD 1.1505 in the prior session. The dollar was 0.1% up against the yen at 157.86.

Some strategists warned optimism about a quick resolution may be premature.

“We’re still in a market where almost everything is still tightly correlated to developments in the crude complex, and where participants retain a laser-like focus on incoming geopolitical headlines,” Pepperstone’s Brown said.

Iran’s Revolutionary Guards dismissed Trump’s remarks as “nonsense” and said the blockade would continue until attacks from the US and Israel end.

Meanwhile, G7 energy ministers stopped short of agreeing on a release of strategic oil reserves on Tuesday and instead asked the International Energy Agency to assess the situation before acting.

The pound was 0.1% lower against the dollar at USD 1.34265.

The pound has been pressured by subdued economic data and domestic political turbulence in recent weeks.

With investors’ appetite for riskier assets creeping back, the Australian dollar rose 0.8% while the US currency slipped 0.3% against the Mexican peso.

The Canadian dollar rose about 0.1% to USD 1.3575 on Tuesday, and the yield on benchmark government debt climbed, as the firming risk appetite helped make up for falling crude prices.

“The CAD has appreciated 2% since November, largely a reflection of rising crude oil prices. Despite persistent risks from US tariffs, stronger oil prices should bolster the loonie,” strategists at global macro research and advisory firm Numera Analytics said in a note.

“Our forecast points to appreciation from 1.37 to 1.33 per USD over the next 12 months,” they wrote.

On Tuesday, leading cryptocurrency bitcoin rose 2% to USD 70,382 but remained close to the multi-year low touched in early February.

(Reporting by Niket Nishant and Jiaxing Li; Writing by Jiaxing Li and Tom Westbrook; Editing by Thomas Derpinghaus, Edwina Gibbs, William Maclean, and Andrea Ricci )