Dollar Pulls Back After Touching Seven-Week High as Oil Swings

The U.S. dollar briefly climbed to its highest level since July 30 on Tuesday, then surrendered ground as oil prices swung on signs of possible U.S.-Iran talks. The dollar index, which tracks the currency against six major peers, ended up 0.17% at 100.59, according to Reuters.

Oil fell after an Iranian official said Tehran could reopen the Strait of Hormuz within seven days if the United States eased military pressure and lifted its blockade on Iranian ports. The proposal followed a report by Japan’s Kyodo News.

Brent crude settled at $99.25 a barrel, down 1.1%, after earlier dropping below $98, the Associated Press reported. The benchmark had approached $110 last week, while before the Iran war it traded near $72.

The price swings matter for the dollar because the conflict has disrupted energy supplies and fueled inflation concerns. Higher oil can keep pressure on prices and strengthen expectations for U.S. interest rates to stay high, supporting the dollar’s appeal to investors.

But cheaper oil can ease those inflation worries and weaken the case for further rate increases. Reuters reported that markets priced in a 55.4% chance of a Federal Reserve rate hike of at least a quarter-point at its October meeting, down from 57.6% the previous session.

Optimism over diplomacy faded later in the day. President Donald Trump said U.S. officials had held a “very good” meeting with Iran’s delegation, but also told the United Nations he expected a deal only after November’s midterm elections. Oil pared some losses as traders reassessed the outlook.

The Strait remains central to the market’s next move. Before attacks on Iran began in late February, it carried about one-fifth of global oil and liquefied natural gas supplies, Reuters reported. Traders will watch for concrete steps to reopen shipping, not just statements, as they gauge whether oil’s drop and the dollar’s retreat can last.