* Dollar broadly strengthens against peers
* Traders cautious amid uncertain US-Iran diplomacy
* U.S. import prices post biggest rise in nearly four years (Updates to US afternoon trading)
NEW YORK, March 25 (Reuters) – The dollar advanced against major currencies on Wednesday, as traders weighed global inflation trends and remained skeptical of de-escalation in the Iran war.
Iran is still reviewing a U.S. proposal to end the conflict, despite an initially negative response, stopping short of rejecting it outright.
Tehran has said the Pakistan-delivered proposal was excessive and demanded sovereignty over the Strait of Hormuz. A senior Iranian official said talks could be held in Pakistan or Turkey if they proceed.
President Donald Trumpsaid the U.S. was making progress in talks with Iran, but Tehran denied direct negotiations have taken place, keeping investors on edge.
Meanwhile, U.S. import prices posted their biggest rise in nearly four years in February, reinforcing signs that inflation pressures are building.
“Markets are perhaps having trouble interpreting the mixed signals” on peace talks, said Shaun Osborne, chief FX strategist at Scotiabank. He expects a fork in the road where either stock volatility falls meaningfully along with the dollar, or volatility remains elevated and stock and bond prices decline.
The U.S. dollar index, measuring the greenback’s strength against a basket of six currencies, rose 0.44% to 99.62. The euro slipped 0.39% against the dollar to $1.1562, while the British pound fell 0.37% to $1.3362.
Sterling found little support earlier from data showing British consumer price inflation held at an annual rate of 3% in February, unchanged from January’s rate, with inflation broadly expected to rise as the war in the Middle East pushes up prices.
Risk assessment remains split, with stocks and bonds trading firmer, and global crude oil prices dropping 1.37% at $103.06 per barrel.
Against the yen, the U.S. dollar rose 0.49% to 159.46 yen. Minutes from the Bank of Japan’s January policy meeting showed many board members saw the need to keep raising interest rates, without specifying the pace.
The Australian dollar was last down 0.63% at $0.6949. Inflation data for February showed a 3.7% rise prior to the start of the Iran war, slightly lower than expected by analysts.
Market expectations of U.S. policy tightening are rising.
Fed funds futures now imply a small chance of a 25-basis-point hike at the Federal Reserve’s December meeting, compared to a cut expected a week ago, CME Group’s FedWatch tool shows.
“We are seeing early signs of a more hawkish tilt from central banks outside the Fed, particularly the ECB and BOJ, which should begin to narrow yield differentials at the margin,” said Joel Kruger, market strategist at LMAX Group in London.
In cryptocurrencies, bitcoin rose 1.20% to $70,900.42, while ether was up 0.8% at $2,165.12. (Reporting by Laura Matthews in New York; Additional reporting by Sophie Kiderlin in London and Gregor Stuart Hunter in Singapore; Editing by Colin Barr, Alexander Smith and Chris Reese)
