The US dollar held steady on Monday as progress in US-Iran negotiations supported investor confidence, while the British pound weakened briefly after Prime Minister Keir Starmer announced plans to resign.
Markets reacted positively to comments from mediating countries Qatar and Pakistan that Washington and Tehran had agreed on a roadmap toward a potential deal to end their conflict within 60 days.
The news pushed oil prices lower, with crude falling 1.6 percent to around US$79.30 a barrel, easing some concerns over energy-driven inflation.
However, uncertainty remained after US President Donald Trump threatened renewed military action and Tehran announced another closure of the Strait of Hormuz, limiting the scale of oil’s decline.
The dollar index, which measures the US currency against six major peers, traded just below 101, near a one-year high. The greenback has gained almost 3% this year as investors expect US interest rates to remain elevated for longer.
Sterling recovered from earlier losses but remained slightly lower at US$1.324 after falling to US$1.318 following Starmer’s resignation announcement.
The move opened the possibility that rival Andy Burnham could become Britain’s next prime minister, potentially making him the country’s seventh leader in a decade since the Brexit vote.
Analysts said currency markets were less focused on the leadership change itself and more concerned about Britain’s fiscal outlook.
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“The market is watching gilts more than the pound, and that looks quiet,” said Kit Juckes, chief FX strategist at Societe Generale.
He added that sterling could remain under pressure due to concerns over inflation, interest rates and government finances.
Yen Near Four-Decade Low
The Japanese yen remained under pressure, trading around 161.74 per dollar and close to a two-year low reached last week.
A move above 161.96 would take the yen to its weakest level since 1986, increasing the possibility of intervention by Japanese authorities.
Japan’s Finance Minister Satsuki Katayama said authorities were prepared to respond appropriately to excessive currency movements.
Analysts warned that intervention could prove difficult while the dollar remains supported by expectations of higher US rates.
“The path of least resistance, outside of any intervention risk, would be for dollar/yen to trade higher,” said Jeremy Stretch, head of G10 currency strategy at CIBC.
Investor positioning has also shifted strongly in favour of the dollar. Data from the Commodity Futures Trading Commission showed speculators held their largest bullish dollar position in 16 months, worth nearly $30 billion.
The US currency continues to benefit from expectations that the Federal Reserve may keep rates higher for longer, supporting demand for dollar-denominated assets.
