Dollar hits seven-month low, stocks, oil retreat as caution reigns

Escalating tensions in the Middle East and the coming testimony of the former FBI director, British elections and a European Central Bank meeting all took their toll on oil, the dollar and Asian stocks on Tuesday, Reuters reports.

European stocks were headed for a subdued start, with financial spreadbetter CMC Markets expecting Britain's FTSE 100 and France's CAC 40 to open flat. Germany's DAX is predicted to start the day down 0.1 percent.

Oil fell back following a brief recovery after Saudi Arabia and several other Arab states severed ties with Qatar, accusing it of supporting extremism and undermining regional stability.

"A potential risk to monitor might be that Qatar will view this as being provided with less encouragement to comply with the agreed (OPEC) production quota," said Jameel Ahmad of futures brokerage FXTM.

Stocks in Qatar plunged more than 8 percent overnight to their lowest since January 2016.

US crude was 0.5 percent lower at $47.18 a barrel on Tuesday, after falling 0.55 percent on Monday.

Global benchmark Brent retreated 0.4 percent to $49.26, extending Monday's 1 percent slide.

The dollar index touched a seven-month low ahead of testimony before the U.S. Congress from former FBI director James Comey on Thursday.

There will be intense interest in what Comey might say about his conversations with U.S. President Donald Trump about an investigation into former National Security Advisor Mike Flynn, who was fired for failing to disclose conversations with Russian officials.

"The dollar is already on the defensive after Friday's jobs data, and now it's facing potential geopolitical risk in the form of Comey's testimony," said Bart Wakabayashi, Tokyo Branch Manager of State Street Bank.

The dollar index, which tracks the greenback against a basket of trade-weighted peers, fell to its lowest level since the November U.S. election. At 0524 GMT, it was down 0.2 percent, to 96.611.

The dollar slid 0.5 percent to 109.90 yen on Tuesday, close to the six-week low hit earlier in the session.

News on Monday of U.S. services sector activity slowing in May as new orders tumbled also hit the dollar.

The dollar further came under pressure from a stronger euro, on expectations the European Central Bank will take a less dovish tone than in the past at its Thursday meeting.

The ECB may even discuss dropping some of its pledges to ramp up stimulus if needed, four people with direct knowledge of the discussions told Reuters last week.

The common currency was 0.1 percent higher at $1.127 on Tuesday.

Sterling advanced 0.2 percent to $1.293 on Tuesday.