Dollar Moves Higher on Uncertainty About US-Iran Talks

The dollar index edged up to 98.3 on Tuesday, its highest level in about a week, as uncertainty in the Middle East prompted a modest flight to safety. It remains unclear whether Iran will join the US for a second round of negotiations ahead of Wednesday’s ceasefire deadline, while the Strait of Hormuz continues to be largely shut. Meanwhile, elevated oil prices continue to add to inflation concerns. Also, investors are closely watching the Senate confirmation hearing for Kevin Warsh as the next Fed Chair. Warsh argued that the Federal Reserve requires significant changes to avoid repeating past mistakes on inflation, calling for a regime shift in how policy is conducted, including a new inflation framework. In addition to using interest rates and the Fed’s balance sheet to combat inflation, Warsh also emphasized the need for clearer and more effective communication from the Fed.

The dollar index hovered near 98 on Tuesday after declining in the prior session, as markets assessed the potential for a longer-term peace agreement between the US and Iran that could reduce demand for safe-haven assets. Vice President JD Vance is set to lead the US delegation in Pakistan again, while Tehran is also reportedly sending representatives after earlier indications that it would not participate in further talks. Meanwhile, President Donald Trump said he is unlikely to extend the current truce if no agreement is reached before it expires this week, adding that the Strait of Hormuz will remain blocked until a deal is finalized. Oil prices pulled back, easing inflation pressures and tempering expectations for more aggressive central bank policy. The Federal Reserve is broadly expected to hold rates steady this month and remain on pause through 2026. Kevin Warsh, President Trump's nominee to lead the Fed, is set to appear for a confirmation hearing in the Senate later today.

The dollar index was little changed at 98.1 on Monday, hovering near the pre-conflict levels seen last week and giving back most of its early gains from the Asian session, as investors focused on escalating tensions in the Middle East and a fresh setback in peace negotiations. On Sunday, the US said it had seized an Iranian cargo ship that attempted to breach its naval blockade, while Iran vowed to retaliate, heightening concerns over a renewed escalation in hostilities. Uncertainty also persists over whether US and Iranian officials will meet ahead of the expiry of a 14-day ceasefire on Tuesday, with Tehran indicating it will not take part in a second round of talks. Meanwhile, oil prices edged higher but remained below recent peaks. Still, concerns about spillovers to inflation and the prospect of rate hikes by the Fed continue to lend support to the greenback.