Gold prices sank to a three-week low on Tuesday, as the U.S. dollar firmed and oil prices climbed with investors eyeing a crush of central bank interest rate decisions this week.

By 05:41 ET (09:41 GMT), spot gold had dropped by 1.5% to $4,610.31 an ounce and gold futures had declined by 1.5% to $4,624.06 an ounce.

A tracker of the U.S. dollar against a basket of currency peers strengthened, making bullion more expensive for overseas buyers. The greenback has been floating just above pre-war levels, as traders view it as a relative safe-haven amid geopolitical strife and suggest that the U.S.’s status a major energy exporter will help insulate it from war-linked energy shocks.

Also weighing on the yellow metal was a fresh increase in oil prices following media reports that U.S. President Donald Trump was unhappy with Iran’s latest proposal to end their two-month war and reopen the Strait of Hormuz.

Tehran proposed delaying negotiations over its nuclear program, although Trump has stated that eradicating these ambitions were a central reason for starting his joint campaign with Israel in late February.

The impasse means that, for the moment, the Strait of Hormuz will remain all but shuttered to shipping traffic, further placing upward pressure on oil prices. Roughly a fifth of the world’s crude flows through the narrow waterway off Iran’s southern coast.

Worries have abounded that the jump in oil prices will, in turn, fuel a surge in inflation that could cause central banks to consider interest rate hikes. This may not bode well for bullion, which tends to perform poorly in low-rate environments.

Central bank decisions in focus

A bevy of central banks are unveiling new rate announcements this week, possibly offering insight into how the oil price spike could impact borrowing costs in countries around the world.

The Bank of Japan left interest rates unchanged on Tuesday, but warned of cooling economic growth and rising inflation due to the impact of the war in the Middle East.

As widely anticipated, the BOJ left its short-term policy rate at 0.75%.

However, the decision was not unanimous, with three of the bank’s nine-member rate-setting board arguing for higher interest rates due to rising inflationary risks. It was the biggest number of dissents since January 2016, when the BOJ adopted negative interest rates.

The central bank flagged that “[g]iven that underlying inflation has been approaching 2% and real interest rates are at significantly low levels," it will "continue to raise its policy rate in response to developments in the economy, prices and financial conditions.”

In a note, analysts at Capital Economics said: "While the Bank of Japan left interest rates unchanged today, its Outlook report was hawkish and we’re sticking to our forecast that the Bank will hike rates in June." 

Later this week, the Federal Reserve, the European Central Bank, and Bank of England will announce new rate decisions.