The greenback retreats modestly as geopolitical risk dominates currency markets, with Trump warning of civilizational destruction if Tehran misses his Tuesday evening ultimatum.

The U.S. dollar edged lower on Tuesday as investors processed an increasingly alarming set of signals from Washington ahead of President Donald Trump’s deadline for Iran to reopen the Strait of Hormuz — a confrontation that has become the defining risk event for global markets this week.

Dollar Weakens, Euro and Sterling Firm

The U.S. dollar index, which measures the greenback against a basket of major currencies, slipped 0.1% to 99.88 by mid-morning New York time. The euro gained 0.2% to $1.1563, while the British pound edged up 0.1% to $1.3257. The modest moves reflect a market caught between the dollar’s traditional safe-haven appeal and growing unease over the consequences of a potential escalation in the Middle East conflict.

Trump’s Most Severe Warning to Date

The rhetoric from the White House intensified sharply on Tuesday, with Trump issuing what amounted to his most sweeping threat yet. Writing on social media, the president warned that “a whole civilization will die tonight, never to be brought back again,” before adding that he did not want that outcome but believed it “probably will” occur. The statement marked a significant escalation in tone even by the standards of a conflict that has already upended global energy markets.

On Monday, Trump had reiterated threats to strike bridges and power plants across Iran should Tehran refuse to halt hostilities and unblock the Strait of Hormuz, warning the country would need “100 years to rebuild” from any fresh wave of American strikes. Despite the combative language, the president left a diplomatic off-ramp open, indicating a negotiated resolution to the conflict remains possible.

Diplomacy Hangs in the Balance

Pakistan’s mediation efforts appear to be approaching a pivotal moment. Iran’s ambassador to Pakistan, Reza Amiri Moghadam, described the process as nearing a “critical, sensitive stage” in a social media post, though he offered no specifics beyond urging followers to “stay tuned for more.” The comment did little to clarify whether a breakthrough is genuinely within reach before the deadline expires.

Iran has already rejected a U.S.- and regionally-backed proposal that would have paused fighting for 45 days in exchange for reopening the strait. Meanwhile, both Iran and Israel continued to exchange strikes on Tuesday, and the Wall Street Journal reported that the U.S. military is actively preparing for potential strikes on energy infrastructure targets inside Iran, citing multiple officials.

Strait of Hormuz Remains the Central Flashpoint

The Strait of Hormuz, the narrow waterway off Iran’s southern coast through which approximately one-fifth of global oil supply flows, has remained largely closed to tanker traffic for weeks. Its continued blockade has driven crude prices sharply higher, fueled inflation concerns across major economies, and created a supply shock rippling through markets from Asia to Europe.

With the clock ticking toward Trump’s Tuesday evening deadline and diplomatic signals deeply ambiguous, currency and broader financial markets are bracing for a night that could prove pivotal for the trajectory of global risk appetite in the weeks ahead.