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SINGAPORE: The US dollar remained largely stable on Monday following the conclusion of the first round of US-Iran negotiations in Switzerland, as geopolitical tensions and shifting global policy expectations kept currency markets cautious. Meanwhile, oil prices eased by more than 1% after the announcement, with Brent crude last trading at $79.36 per barrel, reflecting relief over potential diplomatic progress.
The talks ended with mediators Qatar and Pakistan announcing a 60-day roadmap towards a potential final agreement, offering tentative optimism for easing a conflict that has weighed on global financial sentiment. However, continued tensions, including warnings from US President Donald Trump of renewed military action and Iran’s announcement of a closure of the Strait of Hormuz, kept investors on edge.
A joint statement said both sides had agreed to mechanisms aimed at de-escalating hostilities in Lebanon, alongside establishing communication channels to secure maritime traffic through the strategic waterway.
Market analysts said energy-driven volatility would continue to shape broader asset movements. “Flows in FX and commodities, particularly gold, will continue to be heavily influenced by developments in the energy complex,” said Chris Weston of Pepperstone.
Sterling Comes Under Pressure Amid UK Political Concerns
The British pound slipped 0.21% to $1.3210 as traders weighed domestic political uncertainty following growing speculation over Prime Minister Keir Starmer’s political future after a decisive parliamentary win by rival Andy Burnham.
Currency strategists, however, suggested the decline may be limited. OCBC analysts maintained a neutral outlook, noting that while markets were reacting to political headlines, fiscal continuity expectations remained largely intact.
Yen Hovers Near Multi-Decade Lows
The Japanese yen weakened further to 161.55 per dollar, remaining close to levels not seen in decades and approaching territory last touched in 1986. A break beyond 161.96 would mark its weakest point since then.
Japanese Finance Minister Satsuki Katayama said authorities were ready to intervene if necessary, reiterating the government’s stance on excessive currency volatility. Analysts, however, said structural pressures remain difficult to counter. “The MOF may be getting sore necks watching USD/JPY surge into the 2024 high,” said Matt Simpson of StoneX, adding that intervention could prove costly against strong US economic fundamentals and a hawkish Federal Reserve.
Market Focus Remains on Interest Rate Outlook
The yen has surrendered earlier gains triggered by intervention attempts, as expectations of continued US rate tightening have strengthened the dollar’s appeal. Shen Li of State Street said interest rate differentials remain the key driver of USD/JPY movement, adding that upward pressure on the pair is likely to persist as markets watch the Federal Reserve’s policy path.
US Treasury yields also remained elevated, with two-year notes rising to 4.2276%, their highest since early 2025. Markets are currently pricing in around 43 basis points of rate increases this year, with a 25-basis-point move expected by September.
