The US dollar maintained a firm footing above the 99.00 level on Tuesday, recovering modestly after a 0.3% decline in the previous session. Geopolitical risks emanating from the Strait of Hormuz continued to weigh on risk appetite, even as reports of progress in US-Iran negotiations offered some support.
Market sentiment initially improved on Monday following unconfirmed reports that Washington and Tehran were nearing a 60-day ceasefire extension and discussing the full reopening of the Strait of Hormuz. However, optimism faded after the US military reportedly struck Iranian missile launch sites and mine-laying vessels in southern Iran, describing the action as self-defense. Iran’s Armed Forces responded with a warning that any further aggression would trigger a severe response extending beyond the region.
Against this backdrop, the US Dollar Index held modest gains near 99.00, while benchmark 10-year Treasury yields edged lower to around 4.5%. US equity index futures pointed higher, rising between 0.7% and 0.9%, reflecting a cautious yet resilient market tone.
Currency Markets in Wait-and-See Mode
Major currency pairs traded within narrow ranges as investors weighed diplomatic developments against the risk of further escalation. EUR/USD struggled to extend Monday’s gains, trading sideways below 1.1650 during the European session. The British pound also lost momentum after rallying to a 10-day high above 1.3500 on Monday; GBP/USD slipped to near 1.3480, down 0.2% on the day.
The Japanese yen remained relatively stable, with USD/JPY hovering around 159.00 after closing slightly lower on Monday. Meanwhile, the New Zealand dollar remained under pressure ahead of the Reserve Bank of New Zealand’s policy decision, with NZD/USD falling more than 0.3% to near 0.5850. Markets widely expect the RBNZ to hold rates at 2.25%.
Gold Retreats, Commodities in Focus
Gold prices reversed course after gaining more than 1% on Monday, with XAU/USD declining toward $4,500 early Tuesday as investors reassessed geopolitical risks and broader market sentiment. The pullback came despite ongoing uncertainty in the Middle East, suggesting some profit-taking after the recent rally.
For broader context on how geopolitical tensions are influencing currency and commodity markets, readers may refer to our earlier analysis on Dollar Steady, Markets Cautious Ahead of US Jobs Report; Gold, Oil Range-Bound and Forex Markets Steady as Middle East Tensions Rise; Dollar Awaits ISM Data.
Data and Diplomacy in Focus
Investors are now awaiting fresh US economic data, including the Conference Board’s Consumer Confidence Index for May and the Dallas Fed Manufacturing Business Index. These releases could provide further direction for the dollar and risk assets, especially as markets remain sensitive to any shifts in the geopolitical landscape.
Iranian negotiators are reportedly meeting Qatari mediators in Doha to finalize a memorandum of understanding with the US, though disagreements over Iran’s nuclear program and sanctions remain key sticking points. Until a clearer resolution emerges, forex markets are likely to remain cautious, with the dollar supported by safe-haven flows but vulnerable to sudden shifts in sentiment.
This article is for informational purposes only and does not constitute financial advice.
