Dollar Holds Steady Amid Escalating Tensions in Iran and Hopes for Ceasefire

US Dollar Steady as Investors Weigh Iran War Escalation

The US dollar remained steady on Monday, while the yen flirted with the crucial 160 per dollar level, as investors assessed the escalating Iran war. The latest deadline from US President Donald Trump to reopen the Strait of Hormuz has set a precise target of 8 p.m. Eastern Time (0000 GMT Wednesday).

The euro was trading at $1.1542, while sterling last fetched $1.324. The dollar index, which measures the US currency against six others, was last at 100. With many Asian and European markets closed on Monday, liquidity was thin. The Australian dollar was 0.49% higher at $0.692, wobbling near last week's two-month low.

The ongoing conflict between the US and Iran has had a significant impact on global markets since the end of February. The closure of the Strait of Hormuz, through which about a fifth of the world's total oil and liquefied natural gas passes, has pushed oil prices well above $100 per barrel. This has stoked fears of high inflation and upended the outlook for interest rates across the world.

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The Hormuz closure has also weighed on economic growth, with worries about stagflation risks swirling. As a result, traders are no longer pricing a rate cut from the Federal Reserve until well into the second half of 2027, compared with expectations of two reductions in 2026 at the start of the year.

The Japanese yen was down at 159.71 per US dollar, not far from the 21-month low hit last week. Traders are watching for indications of Tokyo intervening in the wake of strong warnings from officials in the past few days. Japanese Finance Minister Satsuki Katayama has put currency traders on notice, saying the government stands ready to act against speculative moves in foreign exchange markets.

However, many doubt the firepower of any intervention at a time when geopolitical turmoil in the Middle East is fueling relentless demand for the safe-haven dollar. The yen is down 1.5% since the war started, stuck close to the 160 level. Speculators have also been adding to their short yen positioning, with the latest weekly data showing a short position worth $5.7 billion, the highest since July 2024, when Japan last intervened in the FX markets.

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