The U.S. dollar weakened on Tuesday as investors reconsidered developments in the escalating Middle East conflict. Market participants grew cautious amid concerns that recent optimism about a rapid resolution to the crisis may have been premature.
The dollar had strengthened in recent sessions after U.S.-Israeli strikes on Iran pushed oil prices sharply higher. However, traders now believe the market may have reacted too strongly to comments from U.S. President Donald Trump suggesting the conflict could end sooner than expected. Trump later added uncertainty by indicating the war might continue for longer, while Iran faced its heaviest attacks since the conflict began.
Michael Brown, senior research strategist at Pepperstone in London, said investors had quickly embraced hopes that the conflict could soon end following Trump’s remarks. However, the lack of concrete steps toward de-escalation has since weakened market sentiment.
The U.S. Dollar Index, which tracks the greenback against a basket of six major currencies, slipped 0.1% to 98.74.
The euro remained mostly unchanged at $1.16318 after dropping to a three-month low of $1.1505 in the previous trading session. Meanwhile, the dollar edged up 0.1% against the Japanese yen to 157.785.
Other financial markets showed slightly more optimism. Oil prices declined, with U.S. crude trading near $87 per barrel. Treasury yields also fell, signaling a pullback in the rush toward safe-haven assets. U.S. stock indices were marginally lower on Tuesday.
Earlier in the week, Trump suggested the war could end sooner than originally expected. However, he also warned of escalating military action if Iran attempts to block oil shipments through the Strait of Hormuz, a key global energy route.
Iran’s Revolutionary Guards rejected Trump’s statements, calling them “nonsense,” and reiterated that any blockade would remain in place until U.S. and Israeli attacks stop.
Oil prices cool after recent surge
Oil prices dropped more than 5% on Tuesday, retreating further from the highs reached on Monday. Finance ministers from the G7 said they were prepared to take necessary action if energy prices continue to rise sharply, though they stopped short of committing to a coordinated release of emergency oil reserves.
The British pound rose 0.1% to $1.3465 against the dollar. Expectations that the Middle East conflict could eventually ease helped reduce inflation concerns for the import-dependent UK economy.
Sterling has been under pressure in recent weeks due to weak economic data and domestic political uncertainty.
Meanwhile, growing investor appetite for riskier assets supported several other currencies. The Australian dollar climbed 0.6%, while the U.S. dollar slipped 0.3% against the Mexican peso.
The Canadian dollar also strengthened slightly, rising around 0.1% to 1.3575 per U.S. dollar. Government bond yields in Canada increased as improving risk sentiment offset the impact of falling crude oil prices.
Analysts at macro research firm Numera Analytics said the Canadian dollar has gained about 2% since November, largely driven by higher oil prices. They expect the currency to continue strengthening, projecting it could rise from 1.37 to 1.33 per U.S. dollar over the next year.
In cryptocurrency markets, bitcoin rose about 1% to $69,917 on Tuesday but remained close to the multi-year low recorded earlier in February.
