The U.S. dollar remained stable on Tuesday as market participants adopted a cautious stance regarding the ongoing Middle East peace negotiations. Lebanon declared a limited ceasefire between Hezbollah, backed by Iran, and Israel; however, the prevailing geopolitical uncertainties continued to create tension among traders. Investors have approached news regarding any advancements in resolving the Iran conflict with a degree of caution, considering the delicate nature of the U.S.–Iran ceasefire established in early April. The dollar index, which measures the currency against six peers, has softened from the gains that were seen following the announcement regarding Lebanon on Monday. While the agreement indicated a certain level of de-escalation, it was still constrained in the context of a broader regional conflict that has affected oil transportation through the Strait of Hormuz. “The situation is likely to remain unstable for the time being, at least until Iran and the U.S. actually strike a deal in their talks,” said Kumiko Ishikawa.

That suggests markets may remain influenced by headlines and exhibit volatility, yet mere reports of gradual advancements are probably insufficient to foster a sense of reassurance. The dollar index increased to 99.19, the euro rose to $1.1633, and sterling saw a slight gain to $1.3457. The dollar experienced a rally at the beginning of the conflict that commenced on February 28, supported by safe-haven demand and the U.S. economy’s comparatively limited vulnerability to energy-driven inflation. However, it has relinquished a portion of those gains owing to the ambiguity surrounding the conflict’s trajectory. In Japan, Finance Minister Satsuki Katayama stated on Tuesday that the authorities are prepared to take action in the currency market as necessary, while choosing not to comment on the recent fluctuations in exchange rates.

The Japanese yen was slightly lower against the dollar at 159.71 per dollar, approaching the 160 level that markets widely view as a potential trigger for intervention. “If dollar/yen breaks above 160, the risk of surpassing the April 30 high would increase markedly, raising the likelihood of stronger verbal warnings and a renewed round of rate checks or actual intervention,” stated Masafumi Yamamoto. Markets are anticipating a speech by Bank of Japan Governor Kazuo Ueda on Wednesday, looking for potential indications regarding the central bank’s decision on a rate increase next week. On U.S.-Iran ceasefire negotiations, Sony Financial’s Ishikawa noted that unless sentiment improves, the dollar/yen is unlikely to experience the kind of dollar-selling pressure that typically accompanies an unwinding of safe-haven dollar buying. “On balance, the near-term risk in dollar/yen still seems to lean slightly more toward additional dollar strength rather than dollar weakness,” she stated.

Later, the U.S. Labour Department will release job openings data ahead of Friday’s closely watched monthly employment report, while the euro zone’s May consumer price index will also be announced. Markets are anticipating that the U.S. central bank’s forthcoming action will involve an increase in its benchmark interest rate, in contrast to prior expectations for a reduction prior to the onset of the Iran conflict, largely due to escalating energy prices and their consequential effects on inflation. Friday’s monthly U.S. employment report may influence the Fed’s policy direction in the short term. The data is anticipated to reflect an increase of 85,000 jobs in May, with the unemployment rate remaining steady at 4.3%, as indicated. The Australian dollar appreciated marginally by 0.03% to $0.7156 in relation to the U.S. dollar, whereas New Zealand’s kiwi experienced a modest increase of 0.02% to $0.593.