FOREX: Dollar climbs after US-Iran talks, pound choppy following Starmer exit

NEW YORK – The U.S. dollar rose on Monday as early-stage U.S.-Iran talks boosted market optimism for a potential peace agreement, while the British pound experienced choppy trading following Prime Minister Keir Starmer’s announcement that he would step down.

Washington temporarily waived sanctions on Iran for 60 days starting Monday after the first round of negotiations under an emerging peace framework. Officials also reported relative calm in Lebanon after recent clashes that had previously led Iran to declare the Strait of Hormuz closed.

Crude oil prices fell on easing supply concerns. U.S. crude dropped 1.84% to $75.19 per barrel, while Brent crude slid 3.29% to $77.93 per barrel.

The U.S. dollar index, which tracks the greenback against a basket of major currencies, rose 0.16% to 101. The euro weakened 0.36% to $1.1427.

European Central Bank President Christine Lagarde said the euro zone’s inflation shock remains too significant to ignore, though not yet strong enough to trigger sustained increases in long-term inflation expectations or broader second-round effects.

The euro is closely watched as policymakers weigh the inflation outlook across the region under the European Central Bank.

Pound Recovers Amid Political Uncertainty

Sterling rebounded after hitting an intraday low of $1.3175, following confirmation that UK Labour leader Keir Starmer would resign. His departure opens the possibility of a leadership contest that could bring new political leadership to the United Kingdom in the coming weeks.

Market participants are closely monitoring fiscal credibility risks and bond market reactions as political uncertainty rises.

“The bond market will really be what people will be watching to see the credibility of the new government,” said Marc Chandler, chief market strategist at Bannockburn Capital Markets in New York.

Sterling last traded up 0.08% at $1.3243.

Yen Near Multi-Decade Lows

Against the Japanese yen, the dollar gained 0.14% to 161.50, after briefly touching 161.92. The move brought the currency close to its weakest levels in decades, with a break above 161.96 set to push the yen to its lowest since 1986.

The yen saw volatile trading sessions, with intermittent strengthening against the dollar before reversing gains.

Following a recent rate adjustment by the Bank of Japan, Japanese Finance Minister Satsuki Katayama said authorities remain prepared to respond to excessive currency volatility at any time.

The yen has erased gains from previous intervention rounds, as expectations of tighter U.S. monetary policy continue to support the dollar. Markets are increasingly pricing in additional rate hikes from the Federal Reserve, which has strengthened the greenback.

“People should be on guard for BOJ intervention and maybe even supportive comments from the U.S.,” Chandler added.

Major banks, including Deutsche Bank and BofA Global Research, have revised their forecasts to include additional Federal Reserve rate hikes in the coming months. Market pricing now reflects a 38.5% probability of at least a 25-basis-point hike at the Fed’s July meeting, up sharply from 6.4% a week earlier, according to CME FedWatch data. -Reporting by Chuck Mikolajczak; additional reporting by Amanda Cooper and Dhara Ranasinghe in London, Ankur Banerjee in Singapore; Editing by Aidan Lewis, William Maclean, David Goodman, Andrew Heavens and Deepa Babington/Reuters