US Dollar Index pulls back from peaks reached during Iran conflict as demand for safe-haven assets diminishes

US Dollar Index Retreats Amid Shifting Geopolitical Tensions

On Tuesday, the US Dollar Index (DXY) slipped to 98.50, reversing gains from the previous week. This decline came as investors' appetite for safe-haven assets diminished after President Trump indicated that the conflict with Iran may soon be resolved.

Mixed Signals Fuel Market Uncertainty

The trading session was marked by contradictory developments. President Trump reiterated that military operations were nearly complete, which contributed to a sharp 10% drop in oil prices as the International Energy Agency (IEA) held an emergency meeting to discuss releasing strategic oil reserves. In contrast, Defense Secretary Pete Hegseth described Tuesday as the most intense day of US military action in the campaign, with reports of significant airstrikes on Kish Island near Iran's southern coast. Further complicating the narrative, Energy Secretary Chris Wright briefly posted on social media that the US Navy had escorted an oil tanker through the Strait of Hormuz, only to later remove the message. Reuters later confirmed the withdrawal of the escort, casting doubt on the administration’s statements about efforts to restore oil shipments through this vital passage and raising questions about the credibility of official updates.

Upcoming US Economic Data in Focus

This week is packed with crucial US economic releases that could influence the Dollar's direction. The highlight is Wednesday’s Consumer Price Index (CPI) report for February, scheduled for 12:30 GMT. Analysts expect headline CPI to rise by 0.3% month-over-month and 2.4% year-over-year, while core CPI is projected to increase by 0.2% month-over-month. Since the data was gathered before the onset of the Iran conflict, it will not capture the recent surge in energy prices. However, any unexpected uptick could reinforce the Federal Reserve’s cautious stance. Thursday features initial jobless claims (forecast at 215,000) and a speech by Fed Governor Bowman at 19:00 GMT. Friday brings a flurry of reports, including the preliminary Q4 Gross Domestic Product (GDP), January’s core Personal Consumption Expenditures (PCE) at 12:30 GMT, as well as the University of Michigan consumer sentiment index and the Job Openings and Labor Turnover Survey (JOLTS).

Outlook: Geopolitics Remain the Main Driver

The ongoing situation with Iran continues to dominate the broader market narrative. Should geopolitical tensions flare up again or oil prices rebound, demand for the Dollar as a safe haven could quickly return. Conversely, if the conflict de-escalates as President Trump has suggested, the DXY may face further downward pressure as risk premiums fade and expectations for interest rate cuts are reassessed. The upcoming CPI report is likely to be the next major catalyst for the currency’s movement.

DXY Daily Chart Overview