Dollar Firms Up as Peace Talks Collapse

The dollar index held above 98.3 on Wednesday after gaining in the previous session, as plans for a second round of US-Iran peace talks fell apart, boosting safe-haven demand for the currency. Reports indicated Vice President JD Vance canceled a scheduled trip to Islamabad for negotiations after Tehran informed the US via Pakistan that it would not attend the meeting. Iran also said it would not reopen the Strait of Hormuz while the US Navy continues intercepting vessels. Meanwhile, President Donald Trump extended the current ceasefire, stating he would postpone further strikes until Iran submits a new proposal and talks are completed. On the policy side, Federal Reserve nominee Kevin Warsh pledged to maintain independence from the White House while advancing broad reforms, a stance viewed as more hawkish than markets had expected.

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.