Dollar drifts lower as Mideast truce hopes clash with inflation data

The U.S. dollar index dipped 0.05% to 100.9 on Tuesday as conflicting signals from the Middle East and mixed inflation data left currency traders reluctant to take strong positions.

Ten consecutive nights of U.S. military strikes against Iran typically would have driven safe-haven flows into the greenback. However, a senior Iranian official revealed on Monday that Tehran had received a 10-day ceasefire proposal from mediators. The competing realities of military escalation and active diplomatic efforts created a stalemate that kept the dollar in limbo.

Macroeconomic indicators added to the uncertainty. Benign U.S. inflation figures released last week curbed expectations for aggressive Federal Reserve tightening, applying downward pressure on the currency. However, the future trajectory of global prices remains tied to the conflict, particularly the resumption of normal shipping through the Strait of Hormuz. Brent crude has surged roughly 21% this month despite dipping 1.1% on Tuesday, keeping inflation risks alive as LSEG data shows traders still anticipate at least one Fed rate hike this year.

Among major peers, the euro rose 0.09% to $1.1424 while the Japanese yen weakened 0.09% to 162.63 against the dollar. The British pound gained 0.1% to $1.3441, poised to break a three-day losing streak following political transitions in London. Andy Burnham became Britain's seventh prime minister in a decade on Monday and committed to maintaining the previous government's fiscal rules, with John Healey taking over as finance minister.

The Canadian dollar stabilized after touching a one-month low. The recovery attempt followed a steep escalation in trade tensions, as the U.S. imposed a new 50% tariff on a broad range of Canadian products. Washington framed the duties as retaliation for Ottawa's "discriminatory treatment" of American-made cars, alcohol, and dairy goods.