Global financial markets remained cautious following fresh geopolitical concerns linked to tensions involving Iran, developments that have once again strengthened demand for the dollar as a traditional safe-haven currency.
The U.S. dollar index, which tracks the performance of the greenback against a basket of major global currencies, climbed 0.36 percent to 98.30. The index had traded at 97.85 in late February before surging to 100.64 in March at the height of energy market disruptions triggered by the regional crisis.
Analysts noted that the dollar’s renewed strength was closely tied to investor fears over oil supply disruptions and uncertainty surrounding diplomatic negotiations involving the United States, Iran, and China.
The greenback had rallied sharply earlier in the year after oil prices surged following Iran’s effective closure of the Strait of Hormuz, a critical global shipping route for crude oil exports. The development sparked heavy selling of currencies tied to oil-importing economies, particularly the Japanese yen and the euro.
Although the dollar weakened briefly after a ceasefire was announced on April 7, market tensions resurfaced after Donald Trump dismissed Iran’s latest proposal and threatened to terminate the truce.
“It appears unlikely that a breakthrough would be achieved before the Trump-Xi summit later this week,” said Mohit Kumar.
Trump is expected to arrive in Beijing on Wednesday for talks with Chinese President Xi Jinping, with the Iran crisis expected to dominate discussions between the two leaders.
Rising Oil Prices Add Support to the Dollar
Market strategists said elevated crude oil prices continue to provide support for the U.S. currency, especially as concerns grow over supply disruptions in the Gulf region.
“As long as crude oil prices stay high, because of the U.S.' blockade and Iran's threat to tanker traffic in the Gulf, the dollar will stay strong,” said Thierry Wizman.
According to him, the economic consequences of sustained high energy prices may weigh more heavily on oil-importing economies outside the United States.
“The toll that high oil prices will take on the rest of the world’s economies will be much more pernicious than the toll on the U.S.,” he added.
Oil prices reportedly rose about 3 percent on Tuesday as hopes for a diplomatic resolution to the conflict weakened further, reinforcing concerns over global energy supplies.
Wizman also suggested that Washington may now be leaning more heavily on economic pressure tactics rather than military escalation.
“The U.S. administration has probably decided that its economic blockade of Iran could be more effective than resuming bombing runs,” he noted.
Investors Watch Inflation and Interest Rate Outlook
Beyond geopolitical concerns, investors are also paying close attention to the direction of monetary policy in major economies.
Market expectations now suggest that the Federal Reserve may keep interest rates elevated for a longer period due to persistent inflationary pressures in the U.S. economy.
At the same time, traders expect the European Central Bank to continue tightening policy, with projections that its deposit rate could rise to 2.75 percent before the end of the year from the current 2 percent.
The euro weakened by 0.33 percent to trade around $1.1744 against the dollar.
Attention is now turning to the release of key U.S. inflation figures, with economists forecasting that consumer prices rose 0.6 percent last month after a 0.9 percent increase in March.
“Given the likelihood of elevated inflation readings, the case for eventual rate cuts this year looks increasingly difficult to sustain,” said John Velis.
He added that recent economic data from the United States suggests the economy has so far remained resilient despite geopolitical and energy market shocks.
“The last two weeks’ worth of U.S. macro data showed an economy that is not yet feeling acute pressure from the shocks generated by the Iran conflict,” Velis stated.
Yen Volatility Sparks Intervention Speculation
Meanwhile, the Japanese yen experienced sudden volatility during late Asian trading hours, fueling speculation that Japanese authorities may be preparing for another round of currency intervention.
The dollar was last trading at 157.57 yen, up 0.21 percent on the day.
Comments from U.S. Treasury Secretary Scott Bessent also drew market attention after he expressed confidence in the monetary policy direction of the Bank of Japan under Governor Kazuo Ueda.
Japanese authorities are believed to have spent nearly $63.7 billion in efforts to support the yen during the current intervention cycle, highlighting growing concerns over the currency’s prolonged weakness against the dollar.