Dollar under pressure as US-Iran talks fail to gain momentum

The US dollar traded unevenly on Monday as uncertainty surrounding the Middle East conflict kept investors cautious.

Hopes for a potential deal to end the war have fluctuated, leaving markets without clear direction ahead of a busy week of central bank meetings.

US President Donald Trump cancelled a planned visit to Islamabad by his envoys over the weekend.

He said Iran could initiate talks if it wished to negotiate an end to the ongoing two-month conflict.

The development left the strategically important Strait of Hormuz effectively closed, heightening concerns over global trade flows.

Mixed signals from diplomatic efforts

Sentiment improved slightly after Axios reported that Iran had put forward a fresh proposal to the United States through Pakistani mediators.

The proposal reportedly includes reopening the Strait of Hormuz and ending the conflict, while postponing nuclear negotiations to a later stage.

Currency markets reflected this uncertainty.

The euro recovered earlier losses to trade flat at $1.1726, while the British pound edged down slightly to $1.3544.

The dollar index, which tracks the US currency against six major peers, slipped 0.18% to 98.465.

The dollar had previously gained in March on safe-haven demand when the conflict escalated.

However, it has since surrendered most of those gains amid intermittent optimism over a possible peace agreement.

The currency has stabilised in recent sessions after talks between the US and Iran stalled.

Oil prices surge as supply concerns intensify

Despite a ceasefire pausing full-scale fighting, no formal agreement has been reached to end the war.

This has kept shipping through the Strait of Hormuz at a standstill, a key concern for global markets.

The conflict, which began with US-Israeli strikes on Iran on February 28, has pushed oil prices higher, driven by fears of supply disruptions.

The Strait of Hormuz typically carries about one-fifth of global oil and gas shipments, making its closure a major risk factor.

Brent crude futures rose 1% to $107.20 a barrel, while US West Texas Intermediate crude climbed 1.5% to $95.80 a barrel on Monday.

Central banks take centre stage

Investor attention is now shifting to a series of central bank meetings scheduled this week.

Policymakers are expected to assess how the conflict is influencing inflation and economic growth.

The Bank of Japan is widely expected to keep interest rates unchanged on Tuesday.

However, it may signal readiness to resume rate hikes as early as June.

Unlike last year, when higher US tariffs forced a pause in tightening, the Bank of Japan is expected to emphasise its commitment to raising rates.

The ongoing energy shock is seen as a potential driver of broader inflationary pressures.

Yen steadies as intervention concerns linger

The Japanese yen remained stable at 159.26 per dollar, hovering near the critical 160 level that traders believe could trigger intervention by Tokyo authorities.

The currency has remained in the 159 range since early March.

Investors continue to evaluate how rising energy costs may affect Japan, which relies heavily on energy imports, and how this will shape the Bank of Japan’s policy path.

Meanwhile, the Federal Reserve, the European Central Bank, and the Bank of England are all expected to keep rates steady this week.

Markets will closely watch their commentary for insights into how the conflict is shaping the economic outlook and future policy decisions.