Dollar Rises on US-Iran Tensions, Pound Slips Amid UK Uncertainty
Market Reactions to Geopolitical and Political Developments
By Ankur Banerjee
US-Iran Tensions and Impact on Dollar
SINGAPORE, June 22 (Reuters) - The dollar was firm on Monday as uncertainty clouded a tentative U.S.-Iran peace deal following threats from President Donald Trump to restart the war in the Middle East and Tehran's announcement it had closed the Strait of Hormuz.
Despite rising tensions, U.S.-Iran peace talks stretched into their second day in Switzerland under the terms of a memorandum of understanding reached last week to extend a ceasefire from April for at least another 60 days.
Market Analyst Perspectives
Chris Weston, head of research at Pepperstone, said it was not surprising how quickly adherence to the terms of the deal had broken down. "Ultimately, what matters to markets is the flow of cargo through the Strait of Hormuz."
Oil and Commodity Market Movements
Shipping data showed the number of ships that passed through the waterway fell sharply on Sunday after Tehran said it had closed the strait. That lifted oil prices with Brent crude futures climbing 1.30% to $81.62 a barrel. [O/R]
"The physical market remains tight and that should provide some support, but flows in FX and commodities, particularly gold, will continue to be heavily influenced by developments in the energy complex," Weston said.
UK Political Uncertainty and Sterling Performance
Sterling eased in early trading as traders assessed the political tumult in Britain, where Prime Minister Keir Starmer was considering his political future after rival Andy Burnham's decisive election victory to parliament.
The pound was 0.24% weaker at $1.32055, while the euro softened 0.1% to $1.1462. The Australian dollar was last down 0.19% at $0.70035, while the New Zealand dollar last bought $0.573.
Fiscal Policy Outlook
Markets will be focused on Burnham's views on fiscal policy and whether there will be any relaxation of the current fiscal rules, Commonwealth Bank of Australia strategists said.
"A loosening in fiscal rules would likely be poorly received by the UK bond market and weigh on pound," they said in a note.
Japanese Yen and Central Bank Response
The Japanese yen slipped to 161.53 per dollar, hovering near a two-year low reached last week. A break beyond 161.96 would take the yen to its weakest level since 1986.
Official Statements and Market Reactions
Japanese Finance Minister Satsuki Katayama said on Monday that authorities were prepared to respond appropriately to currency moves at any time, reiterating their previous stance.
"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 U.S. fundamentals could prove costly and futile."
The yen has erased gains made after a round of interventions from April 30, as a hawkish tilt by the Federal Reserve has led traders to ramp up bets on rate increases this year.
US Treasury Yields and Interest Rate Expectations
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 bp increase fully priced in by September.
(Reporting by Ankur Banerjee in Singapore; Editing by Himani Sarkar)
