Dollar Stabilizes Amid Ongoing Tensions and Central Bank Uncertainty

Global Markets Await US-Iran Peace Talks and Central Bank Rate Hikes

TOKYO, June 1 - The U.S. dollar held steady on Monday after a weekly loss as markets awaited the results of peace talks in the Middle East and signals on the timing of central bank rate hikes.

The dollar index edged lower last week on hopes for a deal between the United States and Iran to open the Strait of Hormuz shipping lane for oil. Oil prices jumped in early trade after Israel ordered troops to move further into Lebanon in the battle with Iranian-backed Hezbollah. U.S. President Donald Trump said on Friday that he would soon decide on a proposed deal to extend the Iran ceasefire.

The U.S. jobs data later in the week will be in focus as Federal Reserve officials signal that the U.S. central bank may need to raise rates if the war accelerates already-high inflation. According to a Reuters poll, the U.S. nonfarm payrolls data due on June 5 are expected to show an unemployment rate of 4.3% and an increase of 85,000 jobs.

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The dollar index of the greenback against a basket of currencies including the yen and the euro was flat at 99.00, after last week's drop of 0.4%. The euro fell 0.08% to $1.165, while the yen weakened 0.08% to 159.41 per dollar. Sterling slipped 0.07% to $1.3449.

A proposed deal would extend the U.S.-Iran ceasefire by 60 days and allow traffic to resume through the waterway, in normal times a conduit for a fifth of global shipments of crude oil and LNG, while negotiators work through contentious issues. A senior Iranian source told Reuters that an agreement was close but had not yet been approved.

Financial markets are betting the Fed's next move will be to raise its key rate from the current range of 3.50% to 3.75%, probably by year's end. Officials had been eyeing a rate cut before the start of the Iran war.

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Meanwhile, the European Central Bank is expected to raise rates this month, even if a U.S.-Iran peace deal is reached, according to ECB board member Isabel Schnabel. She is set to speak in South Korea on Monday.

The Bank of Japan Governor Kazuo Ueda is scheduled to deliver a highly anticipated speech on Wednesday, which will provide signals on whether the central bank will proceed with a rate increase the following week. While there is no consensus yet within the BOJ on the decision, a pause in the central bank's taper of government bond purchases is increasingly seen as a preferred option, said two sources familiar with the deliberations.

Japan's finance ministry confirmed on Friday that the government spent 11.7 trillion yen ($73.40 billion) intervening in currency markets over the previous month to support the yen. The Australian dollar traded flat at $0.7181 against the greenback, while New Zealand's kiwi fell 0.17% to $0.5978.