US Dollar Maintains Stability Amid Escalating Tensions Over Iran Conflict

Market Volatility: Iran War Escalation Triggers Global Economic Concerns

SINGAPORE, April 6 (Reuters) - The dollar remained steady on Monday, while the yen hovered near the 160 per dollar level as investors grappled with the escalating Iran war, focusing on the latest deadline set by U.S. President Donald Trump to reopen the Strait of Hormuz.

The deadline, set for Tuesday 8 p.m. Eastern Time (0000 GMT), was outlined in a social media post by Trump, who threatened to target Iran's power plants and bridges if the strategic waterway is not reopened. This development has added to the existing market uncertainty, with most of Asia and Europe closed for holiday on Monday.

The lack of liquidity is expected to be a challenge, but risk-off sentiment has already taken hold at the start of the week. Investors are treating the Iran war as an oil-to-inflation-to-rates problem, which is why the dollar remains the cleanest haven for now. The dollar index, which measures the U.S. currency against six rivals, was at 100.2.

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The euro eased 0.13% to $1.151 in early trading, while sterling last fetched $1.3187. The Australian dollar was 0.13% higher at $0.6893, wobbling near the two-month low it hit last week.

Global markets have been rattled since the U.S.-Israel war with Iran broke out at the end of February, with Tehran effectively closing the Strait of Hormuz, a key waterway that carries about a fifth of the world's total oil consumption. This has led to oil prices surging well above $100 per barrel, stoking fears of high inflation and upending rates outlook across the world.

Worries about the hit to economic growth have also weighed as stagflation risks swirl. Traders are now no longer pricing a move from the Federal Reserve well into the second half of 2027 compared with expectations of two rate cuts in 2026 at the start of the year. Data last week suggested U.S. labour market conditions remained calm in March, but economists warned that a prolonged war in the Middle East posed a downside risk.

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ING economist James Knightley noted that despite the better-than-expected outcome in the payrolls report, there are only 260,000 more people in work today than 12 months ago, implying that the jobs market has effectively stalled during a period when the U.S. growth story was healthy.

The Japanese yen weakened to 159.77 per U.S. dollar, not far from the 21-month low it hit last week as traders watch out for indications of Tokyo intervening in the wake of volleys of strong warnings from officials in the past few days. Japanese Finance Minister Satsuki Katayama on Friday put currency traders on notice, saying the government stands ready to act against speculative moves in foreign exchange markets as volatility has risen "significantly."

However, many doubt the firepower of any intervention at a time when geopolitical turmoil in the Middle East is fuelling relentless demand for the safe-haven dollar. The yen is down 1.5% since the war started, stuck near 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.