Key facts
- The dollar strengthened due to uncertainty surrounding a U.S.-Iran peace deal and threats to restart conflict.
- Tehran announced it had closed the Strait of Hormuz, impacting oil prices and shipping.
- Brent crude futures rose 1.30% to $81.62 a barrel amid the disruption.
- Sterling weakened against the dollar due to political uncertainty in the UK.
- The Japanese yen slipped to near a two-year low against the dollar.
- U.S. Treasury yields rose, with 2-year notes reaching their highest since early 2025.
The dollar firmed on Monday as uncertainty clouded a tentative U.S.-Iran peace deal, following threats from President Donald Trump to restart the war in the Middle East and Tehran's announcement that it had closed the Strait of Hormuz. Despite rising tensions, U.S.-Iran peace talks continued into their second day in Switzerland, extending a ceasefire from April for at least another 60 days.
Shipping data indicated a sharp fall in vessels passing through the Strait of Hormuz on Sunday after Tehran declared its closure. This development led to a rise in oil prices, with Brent crude futures climbing 1.30% to $81.62 a barrel. Analysts noted that market flows in FX and commodities would remain heavily influenced by developments in the energy sector.
Sterling eased in early trading as traders assessed political uncertainty in Britain, where Prime Minister Keir Starmer was reportedly considering his future after rival Andy Burnham's election victory. The pound weakened to $1.32055 against the dollar, while the euro softened to $1.1462. The Australian and New Zealand dollars also saw declines.
Strategists from Commonwealth Bank of Australia highlighted that the UK bond market would likely react negatively to any loosening of fiscal rules, potentially weighing on the pound. The Japanese yen slipped to 161.53 per dollar, nearing a two-year low, with authorities stating they were prepared to respond to currency moves. The yen's decline is attributed to a hawkish stance from the Federal Reserve, leading traders to increase bets on rate hikes.
Treasuries remained under pressure, with yields on 2-year notes reaching their highest since early 2025 at 4.2276%, as traders anticipate further rate increases from the Federal Reserve.