The US dollar held steady on Wednesday as investors maintained limited risk appetite amid ongoing concerns about an escalation of the war in the Middle East.

Although signals suggesting a possible quick end to the war between the United States and Israel on one side and Iran on the other helped cap the dollars gains, conflicting developments left traders without a clear direction.

US President Donald Trump suggested on Monday that the war could end sooner than expected, which helped riskier assets recover. However, Iran continued disrupting oil shipments through the Strait of Hormuz, angering Washington.

Chris Beauchamp said: The market doesnt believe the conflict is close to being resolved. Investors are eager to hear positive news, but they are unlikely to get it anytime soon.

Currency moves

The euro held steady at $1.1607 after rising about 0.3% earlier in the session.

The Japanese yen slipped slightly to 158.26 per dollar.

The dollar index, which measures the US currency against a basket of six major currencies, edged up slightly to 98.95.

Analysts at Capital Economics noted that the conflicts impact on global growth and inflation will depend on the duration and scale of energy price increases, which remain uncertain. They added that an extreme scenariowhere the conflict lasts several months and damages energy infrastructurecould push the global economy toward stagflation and lead to higher interest rates across most economies.

Oil volatility and uncertainty

Oil prices recovered on Wednesday after earlier losses in the session, amid doubts about whether a potential plan by the International Energy Agency to release oil reserves would be sufficient to offset any supply shock.

Khalid Azim said financial markets can absorb major shocks if the strategic path is clear, adding: What markets truly suffer from is uncertainty.

As the conflict entered its twelfth day, the United States and Israel exchanged airstrikes with Iranian forces across the Middle East, while the Iranian government warned that its security forces were ready to confront any potential internal protests.

Monetary policy outlook

Traders are cautiously pricing risks. Christina Clifton said expectations suggest the war may last months rather than weeks, keeping uncertainty elevated.

US interest rate futures indicate markets are pricing about 39.7 basis points of rate cuts by the end of the year, reflecting doubts about the possibility of a second rate cut this year.

Markets have also begun pricing the possibility of a rate hike by the European Central Bank over the past week, although policymakers have stressed the need to wait and reassess monetary policy.

Upcoming economic data

Investors are also awaiting the release of US inflation data for February later on Wednesday. Economists surveyed by Reuters expect core inflation to rise 0.2% during the month and headline inflation to increase 0.3%.