The U.S. dollar fell on Tuesday, as investors shunned the safe haven asset for risky equities, buoyed by hopes for progress in ceasefire talks between the U.S. and Iran despite an ongoing American naval blockade in the Persian Gulf.
Also helping risk appetite was a significantly cooler-than-expected U.S. producer inflation report. Worries have swirled around the impact of the Iran war-driven energy shock on inflation, especially after a separate report last week showed a sharp uptick in consumer price growth.
At 17:20 ET (21:20 GMT), the US Dollar Index, which tracks the greenback against a basket of six major peers, fell 0.3% to 98.12.
Get more FX insights on InvestingPro Hormuz blockade enters second day even as Trump touts possible talks The greenback became the safe haven asset of choice for market participants following the onset of the Iran conflict in late February, but the currency has softened recently amid market optimism for a potential de-escalation in tensions.
That optimism grew on Tuesday, after President Donald Trump told the New York Post that more talks "could be happening over the next two days" in Pakistan. The U.S. and Iran have continued to engaged with one another and there has been some forward motion toward a permanent ceasefire deal, Reuters earlier reported.
Trump has also noted that the White House had been contacted by Iranian officials who would like to "make a deal," adding that Iran will not have a nuclear weapon. Washington has reportedly demanded that Iran agree not to enrich uranium, a key part of the process of building a nuclear weapon, for 20 years.
Meanwhile, a U.S. blockade of ships entering and leaving Iranian ports stretched into a second day.
The U.S. Central Command said more than 10,000 sailors, marines, and airmen along with over a dozen warships and dozens of aircraft were helping to maintain the blockade on ships entering and departing Iranian ports.
"During the first 24 hours, no ships made it past the U.S. blockade and 6 merchant vessels complied with direction from U.S. forces to turn around to re-enter an Iranian port on the Gulf of Oman," CENTCOM said.
British maritime officials noted that access has been restricted for vessels attempting to enter or depart Iranian ports, as well as in coastal areas in the Persian Gulf, Gulf of Oman and sections of the Arabian Sea.
Trump said the blockade took effect on Monday, after weekend talks to establish a permanent ceasefire with Iran did not yield an immediate result. The move has threatened to further constrain already shuttered oil flows through the Strait of Hormuz, a vital waterway through which a fifth of the world’s oil supply traverses.
U.S. producer inflation not as bad as feared A key producer inflation report on Tuesday grabbed some of the spotlight. The March U.S. producer price index (PPI) ticked up 0.5% month-on-month and 4.0% year-on-year, below the consensus estimates of 1.1% and 4.6%, respectively. Core PPI gained 0.1% month-on-month in March, and 3.8% year-on-year.
The 12-month increase in the headline figure was the largest since February 2023, driven mainly by a 8.5% month-on-month jump in the index for final demand energy prices.
Still, the miss on the headline numbers calmed investors.
"Clearly expectations were elevated on concerns of higher energy input cost costs which didn’t really materialize in the data," Guy LeBas, chief fixed income strategist at Janney, said on X."
"We all know gas prices are higher, so more likely what’s going on here is that the increases in energy inputs are going to flow through over the course of a few months rather than jusyt one. In some ways, that’s worse for rate policy, since it’ll delay the Fed’s confidence that inflation (presumably) ins’t spreading beyond energy," LeBas added.
Euro, sterling gain; yen stronger despite soft data Turning to other major currencies, the euro EUR/USD and the sterling GBP/USD edged higher, helped by the weaker U.S. dollar. The euro added 0.2% to $1.1795, while the sterling advanced 0.4% to $1.3567.
Meanwhile, the Japanese yen USD/JPY strengthened, with the currency pair slipping 0.3% to $158.80. The move came despite government data showing a 2% month-on-month fall in industrial production in February, compared to a 4.3% rise in January.
Elsewhere, the Australian dollar AUD/USD climbed 0.3% to $0.7122, even as economic surveys painted a glum picture. As per the National Australia Bank, business confidence fell sharply in March following the Iran conflict. Additionally, a gauge of consumer sentiment by the Westpac–Melbourne Institute crashed in April.
