FOREX-Dollar strengthens as geopolitical tensions spur risk-off sentiment

By Chibuike Oguh

NEW YORK, Feb 17 (Reuters) - The U.S. dollar rose against major currencies on Tuesday as geopolitical tensions from the ongoing U.S.-Iran nuclear talks unleashed more market uncertainty and a risk-off mood among investors.

Iran and the U.S. reached an understanding on the main "guiding principles" in a second round of indirect talks over their nuclear dispute on Tuesday, although a deal is not imminent, Iranian Foreign Minister Abbas Araqchi said.

The U.S. has sent a battle force to the Middle East to press Tehran to make concessions in the decades-long dispute. President Donald Trump has said "regime change" in Tehran may be the best thing that can happen.

The dollar tends to do better in times of uncertainty, with investors buying U.S. Treasuries and selling equities, said Eugene Epstein, head of trading and structured products at Moneycorp in New Jersey.

"Treasury yields are coming off quite a bit and you also have the dollar strengthening, which is kind of funny because it's back to the old mentality of risk-off. There's a potential conflict with Iran so you have the traditional buy U.S. dollar, buy U.S. Treasuries and sell equities, and that's seemingly what's going on today," he said.

The dollar was up 0.57% to 0.774 francs against the Swiss franc CHF=. The euro EUR= was down 0.34% at $1.181, on track for the sixth straight session of losses against the dollar. The dollar index =USD rose 0.41% to 97.50.

"We have all the conditions technically for the dollar weakening - with the market currently pricing in the most amount of Fed cuts since the end of last year and bond yields coming off etc - and yet the dollar is strengthening. My guess is it's due primarily to this Iranian conflict," Epstein said.

Investors are also awaiting minutes from the Fed’s last meeting and key economic data later in the week.

U.S. stocks, including the benchmark S&P 500 .SPX, edged mostly lower in choppy trading. The yield on benchmark U.S. 10-year notes US10YT=RR fell 1.2 basis points to 4.045%.

YEN PARES GAINS

The Japanese yen weakened for the second straight session after snapping a five-day winning streak triggered by the election victory of Prime Minister Sanae Takaichi.

Money flowing into Japan's ebullient stock market is expected to support the yen. However, Japan's Nikkei fell on Tuesday as investors booked profits, while the post-election euphoria was ebbing.

The yen JPY= was down 0.17% against the greenback to 153.78 per dollar.

The pound dropped after data showed Britain's unemployment rate rose to a five-year high in December while wage growth cooled, potentially adding to the case for further Bank of England rate cuts. The sterling GBP= weakened 0.9% to $1.3502.

The Australian dollar AUD= weakened 0.38% versus the greenback to $0.7042. The dollar CNH= strengthened 0.13% to 6.891 versus the offshore Chinese yuan.