U.S. dollar slips as key Iran deadline approaches with no breakthrough yet

Investing.com -- The U.S. dollar weakened slightly on Tuesday, as investors remained on edge ahed of a key deadline imposed by President Donald Trump for Iran to reopen the Strait of Hormuz or face attacks on energy infrastructure.

Pakistan requested Trump to extend the deadline by two weeks and asked all warring parties to observe a ceasefire in that period. The move came after the U.S. leader earlier in the day said the entire "civilization" of Iran "will die tonight" if Tehran did not make a peace deal. 

At 17:27 ET (21:27 GMT), the US Dollar Index, which tracks the greenback against a basket of six major peers, fell 0.2% to 99.86.

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Trump threatens Iran, Tehran says will target Aramco facilities

“A whole civilization will die tonight, never to be brought back again. I don’t want that to happen, but it probably will,” Trump wrote on his Truth Social service on Tuesday.

On Monday, Trump reasserted his threat to hit bridges and power plants in Iran with strikes should Tehran not agree to halt hostilities and reopen the Strait of Hormuz by 20:00 ET Tuesday. The vital waterway through which roughly a fifth of the world’s oil passes has been effectively closed by Iran for weeks.

Reuters reported that Iran said there were no negotiations with the U.S. which wants the country to "surrender under pressure," citing a senior Iranian source.

Iran also warned that if the U.S. attacked its power plants, "the entire region and Saudi Arabia will fall into complete darkness," Reuters said, adding that Qatar had conveyed this message to the U.S. on Monday.

Later, Iran’s Tasnim reported that the country would target more oil facilities, including those of Saudi Aramco, if Trump carried out his threats to attack energy infrastructure.

Pakistan asks for deadline extension, two-week ceasefire

Pakistan, which has emerged as a key mediator between the U.S. and Iran, said that "diplomatic efforts for peaceful settlement of the ongoing war in the Middle East are progressing steadily, strongly and powerfully with the potential to lead to substantive results in near future."

"To allow diplomacy to run its course, I earnestly request President Trump to extend the deadline for two weeks. Pakistan, in all sincerity, requests the Iranian brothers to open Strait of Hormuz for a corresponding period of two weeks as a goodwill gesture," the Asian nation’s prime minister Shehbaz Sharif said on X.

"We also urge all warring parties to observe a ceasefire everywhere for two weeks to allow diplomacy to achieve conclusive termination of war, in the interest of long-term peace and stability in the region," he added.

Reuters said Tehran was positively reviewing Pakistan’s request, citing an Iranian official. Separately, Axios reported that Trump was aware of Pakistan’s proposal, citing White House Press Secretary Karoline Leavitt. 

Analyst warns of ’speculative attacks’ on EM currencies

Thierry Wizman, global FX & rates strategist at Macquarie, said that currencies of emerging market (EM) countries that are heavily dependent on oil imports could see "speculative attacks" if the U.S. does end up attacking Iranian infrastructure.

"Ahead of the 8 pm deadline for Iran to open the Strait of Hormuz, the best that we can count on is another delay of the threatened attack on Iran’s energy and power assets. But a ceasefire in the War seems unlikely to be reached today," he said.

"The worst that can happen tonight is if the U.S. follows through on the threat to attack those assets, as retaliation by Iran could further impair oil supplies from the Gulf. A ’risk’ that may manifest if Brent Crude rises toward USD 150/bbl are speculative attacks on the currencies of EM countries that are highly dependent on oil imports," Wizman said. 

"Already, regulators have taken heavy-handed FX-based preventative measures, such as India. Others may do so too, such as Egypt, Indonesia, Turkey, Pakistan and Korea," the analyst said.

"Countries where we can worry less about mounting speculative attacks and regulatory responses on FX trading are those with very liberal regulatory regimes or those with large net positive energy balances," he added.

Weaker dollar boosts euro, sterling; yen strengthens 

Turning to other major currencies, the weaker U.S. dollar on Tuesday gave a boost to the euro EUR/USD and the sterling GBP/USD. The former earlier gained 0.5% to 1.1600, while the latter added 0.4% to 1.3292, though both were last little changed.

Data earlier in the day from S&P Global showed the Eurozone private sector posted its softest expansion in business activity in nine months for March. The report also said demand conditions in March had deteriorated for the first time since July last year.

"March’s PMI indicates that the eurozone economy has already been hit hard by the war in the Middle East. The encouraging signs of growth seen earlier in the year have been eradicated thanks to surging energy prices, choked supply chains, financial market volatility and a renewed downturn in demand," Chris Williamson, chief business economist at S&P Global Market Intelligence, said in a statement.

Elsewhere, the Japanese yen USD/JPY strengthened for a second straight session, moving further back from the key 160 level. Data from the Cabinet Office showed that Japan’s Leading Index climbed 0.3 points in February to 112.4, a 42-month high and in-line with the consensus figure despite businesses having a cautious outlook.

Ayushman Ojha and Scott Kanowsky contributed to this article