The U.S. dollar tread water on Tuesday as investors assessed a flare-up in tensions in the Iran war, while the yen was muted after possible Japanese government intervention helped spur a jump in the currency last week.

By 06:44 ET (10:44 GMT), the U.S. dollar index, which tracks the greenback against a rival currency peers, had inched up by 0.1% to 98.48.

Meanwhile, the euro was mostly unchanged at $1.1689, while the British pound had ticked up by 0.1% to $1.3543.

Writing in a note to clients, analysts at ING said investors will be focused today on data showing April services sector activity and "whether selling price expectations are picking up." Should that be the case, the Federal Reserve may be dragged more towards the price stability side of its mandate, which would imply a tilt to a more restrictive policy stance.

The other pillar of the Fed’s mandate, employment, will step into the spotlight later this week when fresh monthly labor market figures are set to be released.

Hormuz tensions intensify

Hovering in the background were ongoing developments in the Middle East. Traders were noting indications that a U.S. operation to escort some ships through the strait may be loosening Iran’s stranglehold over the area.

In particular, a statement from shipping giant Maersk said a U.S.-flagged vehicle carrier operated by one of its subsidiaries had exited the Gulf via the waterway with the assistance of American military support.

But it was far from clear whether the U.S. effort was leading to a sustained reopening of the strait, a conduit for roughly a fifth of the world’s oil and liquefied natural gas which has been effectively shuttered during the more than two-month old Iran war.

U.S. and Iranian forces launched fresh attacks in the Gulf on Monday as both sides sought to assert control over the strategic waterway.

The attacks rattled an already shaky ceasefire and heightened fears of prolonged energy supply disruptions which have driven up oil prices and sparked worries over an inflationary spike. Tensions ratcheted up further after Iranian strikes reportedly targeted infrastructure in the United Arab Emirates, including an oil terminal in the port city of Fujairah.

Investors have turned to the U.S. dollar as a safe haven throughout the conflict, enticed in part by the view that the American economy -- as a major energy exporter -- was relatively immune to an Iran-linked energy shock.

"Unless there are clear signs of moves towards sustainable peace in the Gulf – and there is some focus that President Trump wants a deal before his trip to China on 14/15 May – we suspect high oil prices can keep short-dated U.S. rates and the dollar bid," the ING analysts said.

Eyes on the yen

Beyond the war, the Japanese yen last stood at 157.73 per U.S. dollar, not straying too far from its strongest level against the greenback in two months.

Last week, the yen spiked versus the dollar by around 1.5%, its biggest weekly increase since February.

Market participants now widely believe that officials in Tokyo intervened in currency markets last Thursday, with the aim of keeping the dollar-yen pair under 160 this year, analysts have suggested.

According to sources cited by Reuters, Japanese authorities did partake in yen-buying activity for the first time in two years.

Reuters added that money market data from Friday suggested that Tokyo may have shelled out as much as 5.48 trillion yen ($35 billion) in yen purchases last week.

Elsewhere, the Australian dollar, a proxy for risk sentiment, inched down after the Reserve Bank of Australia lifted interest rates as anticipated for a third consecutive meeting. The RBA also hiked its inflation projections and downgraded its economic growth outlook.