The US dollar fell on Monday, while the yen approached the critical threshold of 160 per dollar. Investors are weighing the consequences of the intensification of the war with Iran, while all eyes are on the ultimatum set by US President Donald Trump for the reopening of the Strait of Hormuz.
In an expletive-laced social media post on Easter Sunday, Trump threatened to target Iran’s power plants and bridges as early as Tuesday if the strategic sea lane is not reopened, setting a specific deadline of 8 p.m. Eastern Time (00:00 GMT Wednesday).
“Each new ultimatum portends a longer, more persistent and more negative macroeconomic disruption,” said Charu Chanana, head of investment strategy at Saxo in Singapore.
However, investors also had to weigh the possibility of a ceasefire after a media report suggested a last-ditch attempt by negotiators was underway.
The euro stood at $1.1563, while the pound sterling traded at $1.326. The dollar index, which measures the American currency against a basket of six currencies, fell slightly to 99.809. With many Asian and European markets closed on Monday, liquidity is expected to remain limited.
The Australian dollar rose 0.7% to $0.6932, hovering near its two-month low reached last week.
In the kind of mixed messages that are confounding his supporters, his opponents and financial markets alike, Trump told Fox News on Sunday that Iran was negotiating and that a deal was possible by Monday.
Axios reported that the United States, Iran and regional mediators are discussing the terms of a possible 45-day ceasefire that could lead to a permanent end to the war.
Global markets have been under pressure since the war between the United States, Israel and Iran broke out in late February, with Tehran effectively closing the Strait of Hormuz, through which about a fifth of global oil and natural gas production passes. liquefied.
“If the United States opts for escalation, we should expect a sharp price adjustment in global markets,” warned Prashant Newnaha, senior rates strategist at TD Securities.
The Hormuz shutdown pushed crude prices well beyond $100 a barrel, fueling fears of high inflation and upsetting the outlook for interest rates across the world. Concerns about the impact on economic growth have also weighed, while the risks of stagflation are becoming clearer.
Traders are now no longer pricing in a Federal Reserve rate cut until the second half of 2027, compared to forecasts of two reductions in 2026 at the start of the year.
YEN MONITORING
The Japanese yen was almost stable at 159.455 per dollar, not far from the 21-month low reached last week, while traders watch for signs of intervention from Tokyo following firm warnings from the authorities in recent days.
Japanese Finance Minister Satsuki Katayama warned speculators on Friday, saying the government stood ready to act against speculative movements in foreign exchange markets as volatility had increased “significantly”.
However, many doubt the impact of any intervention at a time when geopolitical turbulence in the Middle East is fueling incessant demand for the dollar, a safe haven. The yen has fallen 1.5% since the start of the war, remaining stuck near the 160 level.
“The conditions for a massive intervention by the Japanese authorities to support the yen do not seem to be met, and the market does not seem to have given up on testing the official tolerance threshold,” said Marc Chandler, chief market strategist at Bannockburn Global Forex, in a research note.
Speculators also strengthened their short positions on the yen, with the latest weekly data showing a short position of $5.7 billion, the highest since July 2024, when Japan last intervened in foreign exchange markets.
