The US expressed confidence that peace talks with Iran would go ahead in Pakistan, but significant hurdles remain as the end of a two-week ceasefire approaches.
US president Donald Trump announced the two-week ceasefire with Iran on April 7.
A Pakistani source involved in the talks said it would expire at 8pm Eastern Time on Wednesday, or midnight GMT or 3.30am Thursday in Iran.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, was up 0.22% at 98.28 after a 0.2% decline yesterday.
The Iran war has generally seen the greenback supported by safe-haven demand while rising Brent crude futures weighed on the euro and the yen, as both regions are major oil importers.
“This binary backdrop of geopolitical risk is keeping a tight grip on forex and as long as talks are happening then the US dollar should be on the back foot,” said Paul Mackel, global head of forex research at HSBC, referring to conflicting signals over de-escalation.
“The opposite should also hold true,” Mackel said.
Investors will also keep a close eye on the Senate confirmation hearing of Kevin Warsh, Donald Trump’s nominee for Federal Reserve chair, as key issues such as monetary policy direction, the Fed’s independence and its balance sheet are set to take centre stage.
“Given the audience, it seems reasonable that Warsh may not sound overly dovish versus what is priced in our view, leaving aside his long-term view that AI productivity gains could support lower rates,” HSBC’s Mackel added.
Analysts flagged that with short-term inflation expectations high, Warsh’s comments which see real rates come lower will be dollar negative.
Euro tracks moves in natural gas prices
The euro stood at US$1.1760, down roughly 0.2% on the day.
The single currency has recently tracked moves in energy prices, particularly the price of natural gas, falling in value when gas prices have shot up and vice versa.
Futures for TRPC Natural Gas hit US$68.20 on March 19, their highest levels since January 19, but have since fallen to around US$39.
The euro has gained ground since March 16 when it hit US$1.1409, its lowest level since August 2025.
Traders are still pricing in around two European Central Bank rate hikes by the year’s end but ECB president Christine Lagarde said the bank needs more information before drawing firm policy conclusions.
Analysts expect the ECB to keep rates unchanged this month.
Central bank moves watched
The yen was down 0.20% at 159.20 per dollar, continuing to hover near the crucial 160 level that traders see as the line in the sand for intervention.
The Bank of Japan (BoJ) is likely to hold off raising interest rates next week, five sources familiar with its thinking said, as fading prospects of a near-term end to the Middle East war keep the country’s economic and price outlook uncertain.
“The absence of a rate hike from the BoJ next week could propel the currency pair above 160 and potentially force a reaction from the MoF,” said Jane Foley, senior forex strategist at Rabobank, after arguing that policy meetings in Japan and the US will set the tone for the dollar/yen.
Attention will be paid to US retail sales for March later today, with analysts predicting a chunky 1.4% increase.