Dollar steady as first round of US-Iran talks ends, frail yen in focus

SINGAPORE: The US dollar was steady on Monday as the first round of US-Iran talks fuelled investor optimism for a deal, while the yen inched towards 40-year lows, spurring intervention concerns and verbal warnings from Tokyo.

A joint statement from mediating nations Qatar and Pakistan said the US and Iran agreed to a roadmap toward a final deal within 60 days, providing hope for a resolution to a conflict that has weighed on global inflation and rates outlook.

The talks were tense as investors fretted about threats from president Donald Trump to restart the war in the Middle East and Tehran’s announcement it had closed the vital Strait of Hormuz.

The parties agreed to a mechanism to end the fighting in Lebanon and opened a communications line to help ensure safe passage for commercial ships through the contested strait, according to the joint statement.

Oil prices fell nearly 2% after the announcement with Brent crude futures last at US$79.09 a barrel.

“The physical market remains tight and that should provide some support, but flows in FX and commodities will continue to be heavily influenced by developments in the energy complex,” said Chris Weston, head of research at Pepperstone.

Sterling eased 0.22% to US$1.3209 as traders assessed the political tumult in Britain, where prime minister Keir Starmer was considering his political future after rival Andy Burnham’s decisive parliamentary by-election victory.

OCBC currency strategists do not expect the pound’s initial negative reaction to extend far, and retain a neutral view on the currency.

“Current signals suggest Burnham would adhere to the existing fiscal framework, although delivery will matter more than guidance,” they said in a note.

Yen near 40-year low

The euro last fetched US$1.14555, down 0.15% on the day. The risk-sensitive Australian dollar dipped 0.17% to US$0.7005, while the New Zealand dollar changed hands at US$0.57275.

The Japanese yen remained in the spotlight, softening to 161.66 per dollar, just shy of a two-year low reached last week. A break beyond 161.96 would take the yen to its weakest level since 1986.

Japanese finance minister Satsuki Katayama said on Monday that authorities were prepared to respond appropriately to currency moves at any time.

“The MOF may be getting sore necks watching USD/JPY surge into the 2024 high,” said Matt Simpson, senior market analyst at StoneX.

“Yet they may also feel powerless to do anything about it — as intervening against the tide of a hawkish Fed and strong US fundamentals could prove costly and futile.”

The yen has erased gains made after a round of interventions from April 30, when Tokyo spent a record ¥11.7 trillion (US$72.44 billion), as a hawkish tilt by the US Federal Reserve has led traders to ramp up bets on rate increases this year.

Shen Li, head of foreign exchange sales for APAC at State Street, said the dollar/yen moves fundamentally come down to interest rate differential.

“A lot of the eyes are on the Federal Reserve, how they’re going to shift their policy … I think the upward pressure for dollar/yen will continue.”

Treasuries remained under pressure on Monday with yields on 2-year notes rising to their highest since early 2025 at 4.2276%. Traders are anticipating 43 basis points of hikes this year with a 25 bps increase fully priced in by September.

The dollar index, which measures the US currency against six other units, was at 100.9, just shy of the one-year high it touched last week. The index is up about 2.7% this year, aided by safe-haven flows and expectations that interest rates will stay higher for longer.