The dollar ‌index was last down 0.35% at 100.91, paring some of its earlier losses

The dollar weakened on Tuesday after softer-than-expected U.S. inflation in June tempered expectations for central bank policy tightening.

Analysts said the ​relief may prove temporary with the Iran-U.S.- war pushing energy prices higher and keeping prospects of an interest-rate hike later this year alive.

The dollar ‌index was last down 0.35% at 100.91, paring some of its earlier losses following central bank Chair Kevin Warsh’s first semiannual testimony to Congress.

The odds of a July rate increase dropped to 16% from 42% on Monday, according to CME’s FedWatch tool, although the odds of a rate ​hike this year were more robust at 80%, down from 89% on Monday.

Central bank Governor Christopher Waller said on Monday rates may need to rise “in the near term” if ​data shows inflation remaining well above the central bank’s 2% target.

If Chair Warsh is serious that the inflation surge of the last five years will be a thing of the past, one ‌must consider if ⁠this tightening cycle ends up being a bit more painful than currently expected, said Shawn Snyder, economic strategist at Potomac Fund Management. If that is the case, the dollar could see renewed strength down the road.

The euro gave up some gains and was last up 0.38% at $1.1424. Sterling last traded up 0.27% at $1.3382.

Overnight currency volatility jumped, reflecting nervousness among traders. Overnight implied volatility for the euro, which reflects demand to hedge against large, immediate swings in the currency, briefly topped 10% on Tuesday, something that has rarely happened since ​April.

Let us see if all tariff-related talk ​can go away so that there is ⁠indeed some reprieve to customers after being afflicted by the stubborn pace of inflation, said Juan Perez, director of trading at Monex USA. Suppliers have confessed that they are at their limit in preventing increases in costs being reflected in customer pricing.