The dollar weakened as optimism over potential ceasefire negotiations and softer producer inflation data improved investors’ appetite for risk.

The U.S. dollar declined on Tuesday as investors moved away from the safe-haven currency and shifted toward riskier equities, supported by optimism over potential ceasefire progress between the U.S. and Iran, despite the ongoing naval blockade in the Persian Gulf.

Risk sentiment was further strengthened by a much weaker-than-expected U.S. producer inflation report, easing concerns that the Iran-related energy shock could fuel inflation—especially after a recent surge in consumer prices.

By 17:20 ET (21:20 GMT), the U.S. Dollar Index, which measures the greenback against six major currencies, had dropped 0.3% to 98.12.

The Hormuz blockade continued into its second day, even as Donald Trump signaled that potential negotiations could be on the horizon.

The blockade of the Strait of Hormuz entered its second day even as President Donald Trump highlighted the possibility of renewed negotiations.

The U.S. dollar, which had initially strengthened as a safe-haven asset following the outbreak of the Iran conflict in late February, has recently weakened amid growing optimism that tensions could ease.

This optimism increased on Tuesday after Trump told the New York Post that additional talks “could take place within the next two days” in Pakistan. According to earlier reports, the U.S. and Iran have remained in contact and made some progress toward a lasting ceasefire agreement.

Trump also stated that Iranian officials had reached out to the White House expressing interest in striking a deal, while reiterating that Iran would not be allowed to develop nuclear weapons. The U.S. is reportedly insisting that Iran halt uranium enrichment for 20 years, a key step in nuclear weapons development.

At the same time, the U.S. naval blockade of vessels entering and leaving Iranian ports continued into its second day. The U.S. Central Command said the operation involves over 10,000 personnel, more than a dozen warships, and dozens of aircraft to enforce the restrictions.

CENTCOM reported that within the first 24 hours, no ships managed to pass through the blockade, and six commercial vessels complied with U.S. directives to turn back toward ports in the Gulf of Oman.

British maritime authorities also confirmed that access has been limited for ships attempting to enter or exit Iranian ports, as well as in nearby waters including the Persian Gulf, Gulf of Oman, and parts of the Arabian Sea.

Trump noted that the blockade began on Monday after weekend ceasefire negotiations failed to produce immediate results. The move risks further disrupting already reduced oil flows through the Strait of Hormuz, a critical route that carries about one-fifth of the world’s oil supply.

U.S. producer inflation came in weaker than expected.

U.S. producer inflation came in less severe than expected, drawing significant market attention on Tuesday. The March producer price index (PPI) rose 0.5% month-on-month and 4.0% year-on-year, falling short of forecasts of 1.1% and 4.6%. Meanwhile, core PPI increased by 0.1% over the month and 3.8% compared to a year earlier.

Despite the softer-than-expected overall figures, the annual rise in headline PPI marked the largest increase since February 2023, largely driven by a sharp 8.5% monthly surge in energy prices for final demand.

Even so, the weaker headline data helped ease investor concerns.

Guy LeBas, chief fixed income strategist at Janney, noted on X that expectations had been elevated due to fears of rising energy input costs, which were not fully reflected in the data.

He added that although gas prices are clearly higher, these cost increases may take several months to filter through the economy rather than appearing all at once. This gradual pass-through could complicate monetary policy, as it may delay the Federal Reserve’s confidence that inflation pressures are not spreading beyond the energy sector.

The euro and British pound strengthened, while the yen also gained despite weak economic data.

Among major currencies, both the euro (EUR/USD) and the British pound (GBP/USD) moved higher, supported by the softer U.S. dollar. The euro rose 0.2% to $1.1795, while the pound gained 0.4% to $1.3567.

The Japanese yen also strengthened, with USD/JPY slipping 0.3% to 158.80, despite data showing Japan’s industrial production fell 2% month-on-month in February after a 4.3% increase in January.

In other markets, the Australian dollar (AUD/USD) increased 0.3% to $0.7122, even though economic indicators were weak. According to National Australia Bank, business confidence dropped sharply in March following the Iran conflict, while the Westpac–Melbourne Institute survey showed a steep decline in consumer sentiment in April.