The US dollar extended its gains for a second consecutive session on Tuesday, supported by ongoing uncertainty surrounding the Middle East conflict, which pushed investors toward the dollar as a traditional safe-haven asset.

The dollar had surged sharply in March amid heavy selling of oil-dependent currencies such as the Japanese yen and the euro after oil prices jumped following Irans effective closure of the Strait of Hormuz.

However, the dollar retreated again after April 7, the date the ceasefire began, which Donald Trump threatened to end on Monday, describing the Iranian proposal as nonsense. The US currency is now approaching its pre-war levels.

Mohit Kumar, economist at Jefferies, said: A breakthrough before the Trump-Xi summit later this week appears unlikely.

Trump is expected to arrive in Beijing on Wednesday, where Iran is scheduled to be among the key topics discussed with Chinese President Xi Jinping.

Crude Oil Prices Support the Dollar

Thierry Wizman, global FX and rates strategist at Macquarie Group, said: As long as crude oil prices remain elevated due to the US blockade on Iranian ports and Irans threats against tanker traffic in the Gulf, the dollar will remain strong.

He added: The economic damage suffered by the rest of the world from higher oil prices will be far greater than the damage faced by the United States.

Oil prices rose 2% on Tuesday as hopes for a deal to end the war with Iran continued to fade.

Wizman also noted that the US administration may have concluded that its economic blockade on Iran or what is being described as economic warfare could prove more effective than resuming airstrikes.

The US Dollar Index, which measures the currency against a basket of major foreign currencies, rose 0.35% to 98.30. The index stood at 97.85 on February 27 before climbing to 100.64 in late March, before falling below pre-war levels again late last week.

Investors are also focused on monetary policy expectations, with the Federal Reserve expected to keep interest rates elevated for longer to combat inflationary pressures, while traders expect the European Central Bank to raise its deposit rate to around 2.75% by year-end from the current 2%.

The euro fell 0.33% to $1.1744.

Attention is now turning toward the US inflation report due later in the session, which is expected to show consumer prices rising 0.6% last month after a 0.9% jump in March, according to a Reuters poll of economists. Forecasts ranged between a 0.4% and 0.9% increase.

The data could strengthen expectations that the Federal Reserve will keep interest rates unchanged in the near term. Traders have now fully priced out rate cuts for this year, compared with expectations for two cuts before the outbreak of the Iran war.

Yen Remains Under Watch

The Japanese yen suddenly jumped late in Tuesdays Asian session, sparking speculation about a possible rate check, which often precedes intervention in the currency market.

The dollar traded at 157.57 yen, up 0.25% on the day, after US Treasury Secretary Scott Bessent expressed strong confidence that Bank of Japan Governor Kazuo Ueda would guide the central bank toward a very successful monetary policy.

Japanese authorities are believed to have spent nearly $63.7 billion during the current round of interventions.