The U.S. dollar weakened against major currencies on Monday, as optimism over a potential peace deal involving the Strait of Hormuz spurred risk appetite in global markets.
The dollar fell 0.2% against the yen to 158.87 yen, while the euro gained 0.3% to $1.1642 and the British pound rose 0.4% to $1.3485. The Australian dollar advanced 0.4% to $0.7160, and the New Zealand dollar increased 0.5% to $0.5877, benefiting from a broad-based selloff in the USD.
Many global markets were closed for holidays, leading to thinner liquidity across the region. Analysts from Westpac noted that early Sydney trade showed signs of supported risk sentiment, with riskier currencies like the AUD gaining as a result.
“Markets have become conditioned to be incredibly patient on a tangible breakthrough, but the base case of a deal remains firm, with the weekend news providing further conviction, even if the timing remains unclear.”
Chris Weston, Head of Research at Pepperstone Group Ltd
Over the weekend, U.S. President Donald Trump announced that a memorandum of understanding on a peace deal with Iran had been largely negotiated, though the U.S. blockade on Iranian ships in the Strait of Hormuz would remain until an agreement is finalized.
Oil markets reacted to the news with Brent crude prices falling 5.1% to $98.29 a barrel and U.S. West Texas Intermediate dropping 5% to $91.76 a barrel. Traders expressed cautious skepticism about the durability of the deal, with Chris Weston, head of research at Pepperstone Group Ltd, stating that markets have become conditioned to be patient for a tangible breakthrough.
“There are early signs that risk sentiment remains supported, early Sydney trade revealing a broad-based selloff in the USD, with 'riskier' currencies like the AUD benefitting as a result.”
Analysts from Westpac
Bitcoin rose 0.6% to $77,043.60, while ether increased 0.4% to $2,099.77, reflecting a broader trend of increased risk appetite among investors.
Background
The potential peace deal in the Strait of Hormuz is significant as it could ease geopolitical tensions and stabilize oil markets, which have been volatile due to the ongoing blockade. The region is a critical chokepoint for global oil supply, and any resolution could have far-reaching economic implications.
Looking ahead, market participants will closely monitor developments in the U.S.-Iran negotiations, as a finalized agreement could further influence currency and commodity markets. The timing and details of the deal remain uncertain, but its potential impact on global trade and energy prices makes it a key focus for investors.
