The U.S. dollar rose slightly on Tuesday, following a decline in the previous session, amid a state of anticipation and caution among investors due to uncertainty surrounding Middle East peace talks.

The United States expressed confidence in the possibility of moving forward with peace talks with Iran in Pakistan; however, significant obstacles remain as the two-week truce nears its end. President Donald Trump announced this truce on April 7, and it is scheduled to expire at 8:00 PM ET on Wednesday.

The dollar index, which measures the performance of the American currency against a basket of major currencies such as the euro and the yen, recorded a 0.22% increase to reach 98.28 points, after a 0.2% decline the previous day.

The dollar typically benefits from safe-haven demand during periods of geopolitical tension, while high oil prices negatively impact currencies like the euro and the yen, given Europe and Japan's heavy reliance on energy imports.

In this context, Paul Mackel, head of global FX research at HSBC, stated that the "binary" nature between escalation and de-escalation in the geopolitical landscape is placing pressure on currency markets, noting that continued talks could weaken the dollar, while their failure would support it.

Euro and yen movements under energy and monetary policy pressure

The euro declined by approximately 0.2% to $1.1760, affected by energy price movements, particularly natural gas, as the European currency has recently begun following these price trends closely.

Despite this, traders still expect about two interest rate hikes by the European Central Bank by the end of the year, even though Bank President Christine Lagarde emphasized the need for more data before making decisive decisions, with expectations of keeping rates unchanged this month.

As for the Japanese yen, it fell 0.20% to 159.20 per dollar, remaining close to the critical 160 level, which traders consider a threshold that could prompt Japanese authorities to intervene in the foreign exchange market.

Forecasts suggest that the Bank of Japan may delay raising interest rates at its next meeting, amid continued ambiguity regarding a near end to the war in the Middle East and its impact on the economy.

Anticipation of Fed policies and U.S. economic data

Simultaneously, investors are awaiting the confirmation hearing for Kevin Warsh as Federal Reserve Chair, where eyes will be focused on his views regarding monetary policy and central bank independence.

Analysts believe that Warsh's statements may not clearly lean toward monetary easing, especially given the rise in short-term inflation expectations, which could have a negative impact on the dollar if he suggests a cut in real interest rates.

Investors are also closely monitoring U.S. retail sales data for March, with expectations of a strong 1.4% increase, which may provide additional signals regarding the strength of the U.S. economy.