The U.S. dollar edged higher early Wednesday but remained near multi-week lows as easing geopolitical tensions in the Middle East dampened demand for the safe-haven currency. At 08:20 GMT, the Dollar Index rose 0.2% to 97.665.

Markets Watch Powell’s Second Testimony

The dollar’s recent strength faded following President Donald Trump’s announcement of a ceasefire between Israel and Iran. Although both sides initially violated the truce, hostilities appeared to subside by Wednesday morning, boosting global risk appetite.

Markets now turn to Federal Reserve Chair Jerome Powell, who is scheduled to testify before the Senate—his second appearance this week. On Tuesday, Powell downplayed the urgency for interest rate cuts, citing inflation risks related to Trump’s trade tariffs. However, he acknowledged that a softening labor market and cooling inflation could justify cuts later this year.

ING analysts warned of a “sharply USD-negative scenario” if the Fed adopts a more aggressively dovish stance or if concerns grow over the Fed’s independence.

Euro and Pound Ease Slightly

• EUR/USD dipped 0.1% to 1.1599, just shy of a multi-year high. ECB Chief Economist Philip Lane noted that the central bank would only react to “material” shifts in inflation, signaling policy stability after the latest rate cut.
• GBP/USD edged down 0.1% to 1.3613, near Tuesday’s high of 1.3648—its strongest level since January 2022.

ING analysts believe the euro’s rally may stall unless new macroeconomic catalysts emerge, particularly from the U.S.

Yen Weakens, Aussie Pressured by Inflation Data

• USD/JPY rose 0.3% to 145.31, with the yen softening as Middle East tensions eased. Bank of Japan officials have also suggested holding rates steady amid uncertainty over the effects of U.S. tariffs.
• USD/CNY slipped slightly to 7.1708.
• AUD/USD fell 0.1% to 0.6495 after Australia’s headline CPI hit a seven-month low, and trimmed mean inflation dropped to a three-year low—adding pressure on the Aussie.