The U.S. dollar approached a one-week high against major currencies on Monday before trimming some of its gains, as renewed tensions in the Middle East and fading hopes for a peace agreement drove investors toward safe-haven assets.
The United States said on Sunday that its military had seized an Iranian-flagged cargo ship attempting to breach a blockade on Iranian ports. Iran responded that it would retaliate, heightening concerns about a potential resumption of hostilities.
Iran also stated it would not participate in a second round of peace talks that the United States had hoped to begin before the ceasefire expires on Tuesday.
Charu Chanana, Chief Investment Strategist at Saxo Bank, said that escalating tensions over the weekend had revived geopolitical risk premiums just as markets had begun pricing in potential peace gains. She added that rising oil prices are “not just an energy story, but also a growth and interest rate story.”
Meanwhile, currency market movements remained relatively limited compared to the sharp rise in oil prices, with the dollar giving up some early gains by mid-morning trading in Asia.
The euro was last trading at $1.1757 after falling earlier to a one-week low of $1.1729. The British pound slipped 0.11% to $1.3503, while the risk-sensitive Australian dollar declined 0.17% to $0.7155.
The dollar index, which measures the U.S. currency against six major peers, rose to 98.30, hovering near a one-week high and recovering some recent losses.
The index has fallen 1.5% since the start of April amid increased risk appetite tied to hopes for a peace deal, after gaining 2.3% in March due to safe-haven demand following the outbreak of conflict.
The New Zealand dollar edged down to $0.5876.
The Japanese yen weakened to 159.06 per dollar, nearing the 160 level that traders fear could trigger intervention by the Japanese government to support the currency.
The dollar also rose 0.1% against the Chinese yuan in offshore trading to 6.8244.
Market attention is now turning to the upcoming meeting of the Bank of Japan later this month. Governor Kazuo Ueda has refrained from committing to a rate hike in April due to the impact of the conflict on economic outlooks, but hinted at a possible tightening following last week’s International Monetary Fund meetings, suggesting a more hawkish stance by June.
— Reuters
