Dollar Stabilizes as Markets React to Iran War Developments
The U.S. dollar remained firm on Tuesday, recovering after a recent dip triggered by U.S. President Donald Trump’s decision to delay military strikes on Iranian energy facilities.
Following Trump’s announcement on social media, the dollar briefly slipped to a near two-week low. However, it quickly regained strength. The dollar index, which measures the greenback against a basket of major currencies, rose 0.4% to 99.34 at 06:55 ET. At the same time, the euro edged down 0.1% to $1.1594, while the British pound declined 0.3% to $1.3405.
Trump Delays Strikes but Uncertainty Remains
Trump stated that planned attacks on Iran’s power infrastructure would be postponed for five days. He pointed to what he described as “very strong” discussions with Tehran aimed at ending the ongoing conflict, which has now lasted nearly a month.
However, Iranian officials quickly rejected these claims. The speaker of Iran’s parliament dismissed the idea of negotiations, accusing Trump of attempting to calm volatile financial markets with misleading statements.
Strait of Hormuz Tensions Support Safe-Haven Demand
A major concern for global markets remains the Strait of Hormuz, a critical oil transit route south of Iran. Around 20% of the world’s oil supply passes through this narrow waterway, which is currently disrupted due to escalating tensions.
The risk of further attacks on oil tankers has heightened fears of supply shortages, particularly for energy-dependent economies in Asia. As a result, investors have adopted a more defensive stance, increasing demand for the U.S. dollar as a safe-haven asset during periods of geopolitical instability.
Analysts Highlight Ongoing Market Sensitivity
Market analysts emphasize that currency movements are being driven heavily by geopolitical headlines.
“The dollar continues to react sharply to developments in the Middle East conflict,” analysts at ING noted. “Investors are closely watching for any credible signs of ceasefire negotiations, especially from Iran. Until then, upside potential for risk assets remains limited, and dollar weakness is likely to be contained.”
Yen Weakens as Japan Inflation Misses Target
In Asia, the dollar also posted modest gains against the Japanese yen. Recent data showed that Japan’s core inflation slowed more than expected in February, falling below the Bank of Japan’s target for the first time in four years.
This development has reinforced expectations that the Bank of Japan will take a cautious approach toward further monetary tightening.
Bank of Japan Policy Outlook Remains Uncertain
Despite the slowdown in inflation, analysts believe the Bank of Japan may not shift its stance immediately.
According to ING, the central bank is likely to focus on potential upside risks to prices. Strong wage growth and resilient business activity indicators suggest that a rate hike as early as April remains possible. However, the timing will largely depend on how geopolitical tensions in the Middle East evolve.
