The dollar steadied Tuesday as traders weighed the U.S. blockade in the Strait of Hormuz against the prospect of further dialogue between Washington and Tehran.
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The dollar was largely steady on Tuesday as investors weighed supply risks stemming from a U.S. blockade of Iranian ships in the Strait of Hormuz against the prospect of continued dialogue between Washington and Tehran that could lead to a breakthrough.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.04% to 98.38, with the euro up 0.03% at $1.1761.
The yen strengthened 0.08% against the greenback to 159.3 per dollar. Sterling strengthened 0.03% to $1.3508.
“Expectations that the negotiations will continue are helping to stem the worsening of sentiment in financial markets,” Terumasa Kawakami, analyst at Mitsubishi UFJ Bank, said in a note.
U.S. President Donald Trump said the U.S. military began a blockade of ships leaving Iran’s ports on Monday, while Tehran threatened to retaliate against its Gulf neighbors’ ports after weekend talks in Pakistan on ending the war broke down.
Reuters reported negotiations between Washington and Tehran were still alive despite a tense weekend meeting in Islamabad. Trump said on Monday Iran had been in touch and wanted to make a deal while U.S. Vice President JD Vance said in an interview the U.S. expects Iran will make progress on opening the Strait of Hormuz.
The blockade will test the durability of the fragile ceasefire agreed last week and threatens to push the dollar back up if that unravels, Carol Kong, currency strategist at Commonwealth Bank of Australia, said in a note.
U.S. crude futures were down more than $2 in early Asian trade at $96.99 a barrel.
Meanwhile, chances of an interest rate hike this month by the Bank of Japan, once seen as a strong possibility, have receded as fading hopes for an end to the Iran war keep markets volatile and muddy the economic outlook, sources told Reuters.
Interest rate swaps on Monday indicated a 40% chance of a BOJ rate hike this month, down from 57% from Friday, according to Tokyo Tanshi data.
“We’re very much of the view that if the BOJ decides to stand pat at the end of April, then the risks are that the dollar-yen exchange rate is going to punch up through 160 (yen against the dollar),” said Ray Attrill, head of forex strategy at National Australia Bank, in a podcast.
The 160-yen-per-dollar level is a psychologically important threshold that many market participants believe increases the likelihood of currency intervention.
BOJ Governor Kazuo Ueda on Monday stressed the need for vigilance against fallout from the Iran war in explaining the outlook for monetary policy, rather than sticking to the central bank’s script pledging to keep raising interest rates.
The Australian dollar weakened 0.04% versus the greenback to $0.7091. New Zealand’s kiwi strengthened 0.03% versus the greenback to $0.5868.
In cryptocurrencies, bitcoin gained 1.70% to $74,438.67. Ethereum rose 5.32% to $2,373.32.
