Currency markets were cautious on Tuesday as uncertainty over the status of U.S.-Iran negotiations kept investors on edge. Iranian media reported that Tehran had stopped negotiating with the United States in reaction to increased Israeli hostility in Lebanon, a development that raised doubts about earlier suggestions that a peace agreement was close.
The dollar index and dollar index futures were trading around 99.2 points, holding most of the gains seen in the previous two sessions. The greenback's stability came amid mixed signals from U.S. officials and other developments that have kept markets attentive to the risk of renewed escalation in the Middle East.
U.S. President Donald Trump provided conflicting statements about the talks with Iran, adding to the ambiguity. He said he expects a peace deal within the next week and characterized negotiations as "progressing rapidly," while Iran issued no official comment on the status of discussions. Reports also said Tehran had stopped messaging the U.S. through mediators, prompting questions about how close a settlement really is.
At the same time, a partial ceasefire between Hezbollah and Israel signaled some local de-escalation, but broader regional tensions remained, particularly after U.S. and Iranian air strikes occurred earlier in the week.
Markets have been pricing in the possibility that a prolonged U.S.-Iran conflict would lift inflation pressures and lead central banks, including the Federal Reserve, to adopt a more hawkish stance. Treasury yields have risen sharply in recent weeks and remained near their recent peaks on Tuesday, reinforcing that view among traders.
Beyond geopolitics, attention is turning toward domestic economic data. Nonfarm payrolls for May, due this Friday, are widely expected to be an important input into the Fed's thinking about the near-term path for interest rates.
Major currencies moved in narrow ranges on Tuesday. The euro and the British pound each posted small gains against the dollar, while the Japanese yen was largely unchanged.
Japan's finance minister Satsuki Katayama said authorities were prepared to step into currency markets to limit further yen weakness, a comment that kept USD/JPY muted. The yen had traded back toward the 160-per-dollar area - a level that in early May prompted Tokyo to intervene with tens of billions of dollars - and recent official remarks suggested that additional intervention remains a possibility.
The Australian dollar strengthened by 0.1% after Reserve Bank of Australia board member Ian Harper warned of persistent inflation, a development that could support expectations for further rate increases from the RBA. Meanwhile, the Indian rupee and the South Korean won both saw USD pairs rise by 0.1%; the USD/INR and USD/KRW moves came even as consumer inflation in those economies printed hotter-than-expected for May.
Overall, foreign-exchange markets were characterized by heightened caution, limited directional momentum and a focus on two main drivers this week: geopolitical developments tied to U.S.-Iran relations and the domestic U.S. jobs report that could influence central bank actions.