TOKYO, April 14 : The dollar was largely steady on Tuesday as investors weighed supply risks stemming from a U.S. blockade of Iranian ships in the Strait of Hormuz against the prospect of continued dialogue between Washington and Tehran that could lead to a breakthrough.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.04 per cent to 98.38, with the euro up 0.03 per cent at $1.1761.

The yen strengthened 0.08 per cent against the greenback to 159.3 per dollar. Sterling strengthened 0.03 per cent to $1.3508.

"Expectations that the negotiations will continue are helping to stem the worsening of sentiment in financial markets," Terumasa Kawakami, analyst at Mitsubishi UFJ Bank, said in a note.

U.S. President Donald Trump said the U.S. military began a blockade nL6N40V09Sof ships leaving Iran's ports on Monday, while Tehran threatened to retaliate against its Gulf neighbours' ports after weekend talks in Pakistan on ending the war broke down.

Reuters reported negotiations between Washington and Tehran were still alive nL4N40W0L7 despite a tense weekend meeting in Islamabad. Trump said nL6N40V09S on Monday Iran had been in touch and wanted to make a deal while U.S. Vice President JD Vance said in an interview nL1N40W146 the U.S. expects Iran will make progress on opening the Strait of Hormuz.

The blockade will test the durability of the fragile ceasefire agreed last week and threatens to push the dollar back up if that unravels, Carol Kong, currency strategist at Commonwealth Bank of Australia, said in a note.

U.S. crude futures nFWN40W0IT were down more than $2 in early Asian trade at  $96.99 a barrel.

Meanwhile, chances of an interest rate hike this month by the Bank of Japan,  once seen as a strong possibility, have receded as fading hopes for an end to the Iran war keep markets volatile and muddy the economic outlook, sources told Reuters reuters://realtime/verb\=NewsStory/ric\=nL4N40T1P9.

Interest rate swaps on Monday indicated a 40 per cent chance of a BOJ rate hike this month, down from 57 per cent from Friday, according to Tokyo Tanshi data.

"We're very much of the view that if the BOJ decides to stand pat at the end of April, then the risks are that the dollar-yen exchange rate is going to punch up through 160 (yen against the dollar)," said Ray Attrill, head of forex strategy at National Australia Bank, in a podcast.

The 160-yen-per-dollar level is a psychologically important threshold that many market participants believe increases the likelihood of currency intervention.

BOJ Governor Kazuo Ueda on Monday nL1N40W05N stressed the need for vigilance against fallout from the Iran war in explaining the outlook for monetary policy, rather than sticking to the central bank's script pledging to keep raising interest rates.

The Australian dollar weakened 0.04 per cent versus the greenback to $0.7091. New Zealand's kiwi  strengthened 0.03 per cent versus the greenback to $0.5868.

In cryptocurrencies, bitcoin gained 1.70 per cent to $74,438.67. Ethereum rose 5.32 per cent to $2,373.32.