The US dollar strengthened early Tuesday as investor sentiment weakened amid rising concerns over the fragile ceasefire between the United States and Iran.
Markets are also closely watching the upcoming US Consumer Price Index data for April, which could influence expectations around Federal Reserve policy.
The souring risk mood pushed investors toward safe-haven assets, helping the US Dollar Index climb toward 98.30, up nearly 0.4% on the day.
At the same time, US stock index futures moved lower, falling between 0.1% and 0.6%.
Ceasefire concerns weigh on market sentiment
Investor caution increased after US President Donald Trump said late Monday that the ceasefire was “on life support.”
Trump reportedly made the remarks after Tehran submitted a proposal to end the conflict that was considered “unacceptable” because it did not address nuclear issues.
According to CNN, some of Trump’s aides believe the president is seriously considering a return to combat operations.
The report also stated that Trump is unlikely to make a final decision before travelling to China for a summit with Chinese President Xi Jinping.
The geopolitical uncertainty boosted demand for the dollar while reducing appetite for risk-sensitive assets.
Markets await key US inflation data
Investors are also focused on the release of April CPI data from the United States later in the day.
Annual inflation is expected to rise to 3.7% in April, which would mark the highest reading since September 2023.
The inflation report is being closely monitored as elevated price pressures could affect the Federal Reserve’s future interest rate decisions.
Related commentary from market participants highlighted the inflation risks tied to rising energy prices and global trade routes.
BNY noted that potential Federal Reserve rate cuts remain linked to developments surrounding the Strait of Hormuz, while TD Securities said markets are watching the broader inflation pulse and its implications for the Fed’s policy path.
Oil prices climb as geopolitical tensions intensify
Crude oil prices moved sharply higher amid fears that escalating tensions in the Middle East could disrupt supplies.
West Texas Intermediate crude rose nearly 3% on the day to trade around $98 per barrel.
The rise in oil prices also contributed to inflation concerns, adding pressure on financial markets ahead of the CPI release.
Euro, pound and gold weaken against stronger dollar
The stronger dollar weighed on major currencies during the European session.
EUR/USD remained under pressure and traded slightly below 1.1750, down about 0.3% on the day.
GBP/USD posted steeper losses, falling around 0.8% to trade near 1.3500.
Meanwhile, USD/JPY extended its gains after edging higher on Monday and continued to hold above 157.50.
US Treasury Secretary Scott Bessent said Tuesday that both he and Japanese Prime Minister Sanae Takaichi believe excessive foreign exchange volatility is undesirable.
Bessent also commented on Japanese bond markets, saying, “Japanese government bond yields are pricing in perhaps inflation, a short-term blip in inflation that I believe is transient.”
Gold prices also retreated despite rising geopolitical uncertainty.
Gold (XAU/USD) struggled to maintain momentum after ending Monday in positive territory and tested the $4,700 level, down more than 0.7% on the day.
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