Dollar Holds Firm as Middle East Ceasefire Frays and Oil Climbs

The U.S. dollar refused to budge Tuesday. Peace talks between Washington and Tehran went nowhere. Oil prices edged higher. Investors braced for sticky inflation.

This wasn’t the sharp risk-off move some expected. Yet the greenback found a floor. The dollar index sat at 97.98. The euro bought $1.1775. Sterling fetched $1.3602. Both held steady. Geopolitical Stalemate Revives Safe-Haven Bids

The conflict erupted at the end of February. Thousands died. Energy flows halted. A fragile ceasefire took hold April 7. Now it looks shaky. President Donald Trump called it “on life support.” The latest proposals showed the sides remained far apart on key issues. Trump rejected Iran’s response to a U.S. peace plan as unacceptable. (Reuters)

With the Strait of Hormuz largely closed, supply worries mounted. Brent crude futures rose 0.3% to $104.55 a barrel. West Texas Intermediate gained 0.13% to $98.17. Higher energy costs feed directly into broader prices. Airfares. Food. Transportation. The risk of spillover looms large.

Christopher Wong, currency strategist at OCBC, pointed to the obvious. Trump’s rejection kept markets on edge. It helped put a floor under the dollar. “Still, USD gains were contained, suggesting markets are not yet treating the latest headlines as a full risk-off shock,” Wong said. A formal breakdown or fresh military escalation? That could change everything. (Reuters)

But optimism had already faded in recent weeks. Earlier in April the dollar slid for seven straight sessions as traders bet on a quick deal. The greenback gave back much of its initial safe-haven surge. Now it chops in a narrow range. Hopes rise. Then they recede. The pattern repeats. And each time the floor seems a bit more solid.

Traders also watched developments beyond the Gulf. Trump heads to China later this week. Treasury Secretary Scott Bessent visited Japan and South Korea. Japanese Finance Minister Satsuki Katayama said the U.S. and Japan reaffirmed close cooperation on currency matters after their meeting. Tokyo has spent nearly $63.7 billion intervening to support the yen. It wants more than words from Washington. The yen traded at 157.30 per dollar. Steady. For now.

The Australian dollar slipped 0.14% to $0.724 ahead of the federal budget release. The New Zealand dollar eased 0.07% to $0.5959. Bitcoin fell 0.3% to $81,551. Risk appetite showed cracks but no collapse.

Later Tuesday the focus shifted to U.S. inflation data. Economists surveyed by Reuters expected consumer prices to rise 0.6% in April after a 0.9% jump in March. The range of forecasts stretched from 0.4% to 0.9%. Core measures matter more. Any surprise to the upside would reinforce what markets already suspect.

The Federal Reserve now sees no rate cuts this year. Before the war traders priced in two. Energy costs changed the math. Sarah Hammoud, currency strategist at Commonwealth Bank of Australia, spelled it out. “The risk is that core inflation is stronger than consensus expectations because of spillover from energy prices to other prices such as airfares and food. An upside surprise to U.S. core inflation will push up U.S. interest rates and the dollar.” (Reuters)

Benchmark 10-year Treasury yields held near 4.418%. They rose 4.8 basis points Monday. The bond market priced in patience from the Fed. Higher for longer. That supports the dollar even as equities hover near records. Wall Street shrugged off the latest Middle East headlines. At least for one session.

Recent reporting shows this tension isn’t new. A CNBC analysis from last week described the dollar firming as investors weighed de-escalation hopes against persistent risks. Optimism around a ceasefire repeatedly lifted riskier currencies only to see gains reverse when talks stalled. The pattern echoes across April and into May.

MUFG Research noted in its May 11 weekly that the dollar weakened further last week with no resolution in sight. Yet attacks in the Strait of Hormuz raised the odds of renewed risk aversion. Oil prices fell temporarily on ceasefire talk but the longer the chokepoint stays blocked, the greater the chance sentiment turns. (MUFG Research)

Bank for International Settlements head Pablo Hernández de Cos warned Monday that the conflict disrupted crude and natural gas supplies. Inflation rises. Growth slows. The scale depends on duration and damage to infrastructure. His comments, delivered in a speech on global economic risks, underscored how energy shocks ripple far beyond currency desks. (BIS)

Trading Economics data Tuesday showed the dollar index near 98.0060, up slightly. Over the past month it weakened 0.37%. Unemployment steady at 4.3%. Solid jobs data met higher energy-driven inflation fears. The mix favors dollar strength over time. (Trading Economics)

Forex.com’s May 11 EUR/USD note captured the tension. Without a genuine breakthrough, the pair may struggle to reach 1.2000. Rising oil prices raise stagflation risks for Europe. Hawkish Fed pricing adds pressure. The euro sits vulnerable. (Forex.com)

So the dollar stands firm. Not surging. Not collapsing. It reflects a market caught between fading peace hopes and sticky inflation risks. Diplomats keep talking. Markets keep watching. One wrong move in the Gulf and the floor could become a launchpad. Until then traders price in caution. Higher oil. Steady rates. A greenback that refuses to yield ground.