The U.S. dollar edged higher Wednesday, but was struggling to regain lost ground as the fragile truce between Israel and Iran saw investors take on risk to the detriment of this safe haven.

At 04:20 ET (08:20 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, rose 0.2% to 97.665, but remained near multu-week lows.

Dollar awaits Powell, part II

The greenback initially benefited from increased safe haven demand following weekend U.S. strikes against Iran, but this trend was largely reversed by U.S. President Donald Trump's announcement of the ceasefire.

While Trump did chide Iran and Israel for violating the truce just hours into its taking effect, the Middle Eastern countries appeared to have wound down their aerial strikes against each other by Wednesday morning, providing hope that this ceasefire will hold.

"Markets seem to be trusting the ceasefire between Iran and Israel, and the dollar is back to testing its lows," said analysts at ING, in a note.

Attention is also on Federal Reserve Chair Jerome Powell as he walks up Capitol Hill once more, for the second day of his two-day testimony before Congress, this time in front of the Senate.

Powell downplayed the possibility of rate cuts being imminent during his Tuesday testimony before the House of Representatives, even as Trump continued to lambast the Fed Chair and call for immediate interest rate cuts.

Powell said inflationary risks posed by Trump's trade tariffs were the biggest point of contention for the Fed.

"There is a sharply USD-negative scenario where the Fed turns more abruptly dovish and markets doubt Fed independence," ING added

Euro just off multi-year high

In Europe, EUR/USD fell 0.1% to 1.1599, falling just below its highest level seen since October 2021.

The European Central Bank would react to "material" changes in the eurozone's inflation outlook and ignore "tiny" ones as inflation is now under control, the ECB's chief economist Philip Lane said on Tuesday.

The ECB cut interest rates this month for the eighth time in the past year and signalled at least a policy pause next month as it waits for the trade uncertainty with the United States to clear.

"The EUR/USD rally stalled again in the 1.160-1.165 area and it is plausible markets may require a more compelling macro story (most likely from the U.S.) rather than the mere unwinding of geopolitical risks for a break higher," said ING.

GBP/USD dropped 0.1% to 1.3613, but still not far from Tuesday's peak of 1.3648, which marked its strongest level since January 2022.

Japanese yen retreats

In Asia, USD/JPY traded 0.3% higher to 145.31, with the Japanese yen, which typically acts as a safe haven currency, slipping as the Middle East ceasefire appeared to hold.

Some Bank of Japan policymakers also called for keeping interest rates steady for the time being due to uncertainty over the impact of U.S. tariffs on Japan's economy, a summary of opinions at the bank's June policy meeting showed on Wednesday.

USD/CNY slipped slightly to 7.1708, while AUD/USD fell 0.1% to 0.6495 as headline CPI inflation fell to a seven-month low in Australia, while underlying inflation as represented by annual trimmed mean inflation slid to an over three-year low.

Source: Investing.com