The U.S. dollar hovered near a 10-day low on Tuesday as a preliminary agreement between the United States and Iran improved investor sentiment, while the Japanese yen remained under pressure despite the Bank of Japan’s decision to raise interest rates to their highest level in more than three decades.
Financial markets reacted cautiously after U.S. President Donald Trump announced that Washington and Tehran had signed a preliminary agreement aimed at ending the conflict in the Middle East. However, investors remained wary as details of the accord have yet to be released and questions persist about the durability of the arrangement.
Shipping companies also warned that confidence in trade routes through the Strait of Hormuz may take weeks to recover even if the waterway is fully reopened, suggesting that risks to global energy supplies have not completely disappeared.
The easing of geopolitical tensions helped improve risk appetite across global markets and weighed on demand for traditional safe-haven assets, including the U.S. dollar.
The dollar index, which measures the U.S. currency against a basket of six major peers, was little changed at 99.62, remaining close to its lowest level in more than a week.
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Attention also turned to a busy week of central bank meetings, led by the Bank of Japan (BOJ), which raised interest rates as widely expected in an effort to contain inflationary pressures.
The move lifted Japanese interest rates to their highest level in 31 years, reflecting policymakers’ growing confidence that inflation is becoming more entrenched in the economy.
The BOJ’s decision was approved by a 7-1 vote, a result that analysts interpreted as suggesting some uncertainty within the board regarding the pace of future tightening.
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Speaking after the decision, BOJ Deputy Governor Shinichi Uchida said policymakers would continue to closely monitor economic conditions, inflation trends and developments in the Middle East.
He noted that underlying inflation was approaching the bank’s 2 percent target and stressed the need to remain alert to upside price risks.
Despite the rate increase and relatively hawkish messaging from the central bank, the yen found little support. The Japanese currency traded at around 160.26 per dollar, remaining close to the psychologically important 160 level that has prompted official intervention concerns in recent years.
Market participants remain watchful for any signs that Japanese authorities could step into the foreign exchange market if the yen weakens further.
Analysts said the BOJ’s communication indicated that further interest-rate increases remain possible if inflation and economic conditions continue to evolve in line with forecasts.
Elsewhere, the Reserve Bank of Australia kept interest rates unchanged following three consecutive increases, citing the need to assess the impact of previous tightening measures despite inflation remaining above target.
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The Australian dollar slipped slightly to US$0.706, while the euro edged higher to $1.16. Sterling was little changed at US$1.3418.
Investors are now focused on upcoming policy decisions from the Federal Reserve and the Bank of England, both scheduled later this week.
The Federal Reserve’s meeting is particularly significant as it will be the first chaired by Kevin Warsh. Markets will closely examine policymakers’ outlook for inflation, growth and interest rates.
Although the U.S.-Iran agreement has eased some concerns about energy-driven inflation, analysts cautioned that uncertainty remains high.
Market observers note that a lasting improvement in sentiment will depend on the safe and reliable reopening of shipping routes through the Strait of Hormuz and the restoration of normal supply chains.
For now, investors appear cautiously optimistic, balancing hopes for reduced geopolitical tensions against the possibility that disruptions could re-emerge and influence inflation, growth and monetary policy in the months ahead.
