The U.S. dollar strengthened on Monday following a minor weekly decline as investors assessed the latest developments in Middle East peace negotiations. Tensions between the U.S. and Iran over the weekend have cast doubt on diplomatic efforts to resolve the conflict.
The dollar index, which measures the currency against six major peers, rose by 0.184% to 99.195 after a 0.4% decline last week. This increase came as Iran's Tasnim news agency reported that Tehran's negotiating team halted message exchanges with the U.S. due to attacks on Lebanon. Later, U.S. President Donald Trump announced a pledge from Hezbollah, through intermediaries, not to attack Israel, slightly reducing the dollar's gains.
The euro fell by 0.26% to $1.1632, while the British pound inched up by 0.03% to $1.34565. The potential reopening of the Strait of Hormuz could lead to a decrease in oil prices, which may weaken the dollar and benefit risk-sensitive currencies like the Swedish crown, according to FX strategist Tommy von Bromsen.
“It seems like 160 is where they draw the line. I think there will be intervention if we approach that level again.”
Tommy von Bromsen, FX strategist at Handelsbanken
Currency markets are currently in a holding pattern after the U.S. military struck Iranian air defenses over the weekend. This follows aggressive actions by Iran, including the downing of a U.S. drone. In response, Iran's Islamic Revolutionary Guard Corps targeted a U.S. air base.
Market expectations are shifting towards a potential interest rate hike by the Federal Reserve, driven by rising energy prices and their inflationary impact. The upcoming U.S. employment report, expected to show an 85,000 job increase in May and a steady 4.3% unemployment rate, could influence the Fed's decision.
The yen weakened by 0.28% to 159.710 per dollar, nearing the critical 160 level that previously prompted intervention by Japanese authorities. The Australian dollar fell by 0.29% to $0.7161, while New Zealand's kiwi dropped 0.9% to $0.59365.
Background
The ongoing conflict in the Middle East has significant implications for global markets, particularly in terms of oil prices and currency fluctuations. The situation remains fluid, with potential impacts on monetary policy decisions by central banks worldwide.
Investors will be closely monitoring developments in Middle East peace talks and the upcoming U.S. employment report, which could provide further insights into the Federal Reserve's next moves.
