U.S. Dollar Edges Higher Amid Middle East Uncertainty

The U.S. dollar edged higher on Tuesday after a decline the previous day, as ongoing uncertainty surrounding Middle East peace talks kept investors cautious.

The United States has expressed confidence that peace talks with Iran will proceed in Pakistan, but significant obstacles remain as the end of a two-week ceasefire approaches. U.S. President Donald Trump announced the ceasefire with Iran on April 7, but he has yet to specify an exact expiration time. However, April 21 marks two weeks since the announcement, which could coincide with Tuesday evening in the U.S. and Wednesday morning in Iran. Iran’s armed forces have warned they are prepared to deliver an "immediate and decisive response" to any renewed hostile actions from adversaries.

The dollar index, which tracks the greenback against a basket of currencies including the yen and euro, rose 0.15% to 98.24 after a 0.2% dip on Monday.

Geopolitical Tensions and Currency Fluctuations

The ongoing geopolitical tensions in the Middle East have provided safe-haven support for the U.S. dollar, while rising Brent crude prices have weighed on the euro and yen—both major oil importers. According to Paul Mackel, global head of forex research at HSBC, "This binary backdrop of geopolitical risk is keeping a tight grip on forex, and as long as talks are happening, the U.S. dollar should be on the backfoot. The opposite should also hold true."

In addition to geopolitical concerns, investors are closely monitoring the Senate confirmation hearings for Kevin Warsh, President Trump’s nominee for Federal Reserve chair. Key issues such as monetary policy direction, the Fed's independence, and its balance sheet are expected to take center stage. "Given the audience, it seems reasonable that Warsh may not sound overly dovish versus what is priced in, leaving aside his long-term view that AI productivity gains could support lower rates," said Mackel.

Euro Tracks Natural Gas Prices

The euro stood at $1.1782, down approximately 0.2% for the day. The single currency has been closely tracking energy prices, particularly the price of natural gas. The euro has fallen in value when gas prices have risen and vice versa. Natural gas futures hit $68.20 on March 19, their highest level since January 19, but have since dropped to around $39. The euro has gained ground since March 16, when it hit $1.1409, its lowest point since August 2025.

Traders continue to expect the European Central Bank to raise rates twice by the end of the year. However, ECB President Christine Lagarde has stated that the bank requires more data before making definitive policy decisions. Analysts anticipate that the ECB will keep rates unchanged this month.

Central Bank Actions in Focus

The Japanese yen remained largely unchanged at 158.80 per dollar, hovering near the critical 160 level, which traders view as the threshold for potential intervention. The Bank of Japan is expected to refrain from raising interest rates next week, according to sources familiar with its thinking. The ongoing instability in the Middle East has contributed to uncertainty regarding Japan's economic and price outlook.

Meanwhile, the New Zealand dollar (NZD) traded at $0.5911, up 0.3%. New Zealand's annual inflation rate remained steady at 3.1% in the first quarter, surpassing the central bank’s target range, which raises the likelihood of further rate hikes later this year.

Looking Ahead

Attention will now shift to U.S. retail sales data for March, which analysts predict will show a solid 1.4% increase. This data could provide further insights into the health of the U.S. economy amid the geopolitical uncertainties in the Middle East.

-Reporting by Stefano Rebaudo, additional reporting by Jiaxing Li in Hong Kong; Editing by Thomas Derpinghaus and Edwina Gibbs/Reuters