FOREX: Dollar hits 10-day low as US, Iran reach peace deal

HONG KONG — The U.S. dollar fell on Monday to a 10-day low against major currencies after reports that the United States had agreed to a peace framework with Iran, triggering a sharp drop in oil prices and boosting demand for risk-sensitive assets.

U.S. and Iranian officials said on Sunday they had agreed on the outline of a deal aimed at ending hostilities, lifting the U.S. blockade on Iran, and reopening the Strait of Hormuz, a critical global shipping route. Following the announcement, oil prices declined, with Brent crude futures falling more than 4% to $83.82 per barrel.

Despite the market optimism, caution remained. U.S. President Donald Trump told the New York Times on Sunday that if Iran failed to reach a final nuclear agreement with the United States, military action against Tehran could resume. He also suggested the possibility of the United States taking a more assertive role in the Middle East in exchange for a share of the region’s revenues.

In currency markets, the euro rose to $1.1607, up 0.35% in Asian trading, while the British pound strengthened 0.3% to $1.3448.

Risk-sensitive currencies also gained. The Australian dollar rose 0.50% to $0.7075, while the New Zealand dollar climbed 0.4% to $0.5854.

The U.S. dollar index, which measures the greenback against a basket of currencies including the euro and yen, fell 0.31% to 99.492, its weakest level since June 5.

“I think we’ll see the dollar fall over the course of the next few sessions. We’ll probably see some of the risk currencies like the Aussie and yen appreciate a little bit. But I don’t think we’re going to see any huge moves,” said Nick Twidale, chief market strategist at ATFX Global in Sydney.

“There’s going to be a lot of wait-and-see on how quickly the Strait really reopens and how long it will take for oil flows to return to normal. It’s certainly going to be months rather than weeks.”

The Japanese yen weakened to as much as 160.150 per dollar, continuing to hover near the 160 level widely viewed as a potential threshold for official intervention.

The Bank of Japan is expected to raise interest rates to a 31-year high at its two-day policy meeting concluding on June 16 and signal readiness to continue tightening monetary policy, despite the temporary absence of its governor. The central bank is focused on containing inflation risks linked to instability in the Middle East.

The expected move would align the Bank of Japan with other major central banks shifting toward tighter policy, including the European Central Bank, which delivered a widely anticipated rate hike on Thursday. -Reporting by Jiaxing Li; Editing by Sam Holmes/Reuters