FOREX: Dollar retreats as US-Iran tensions ease, oil prices fall

The dollar slumped against its major peers in Asian trading on Monday after the U.S. paused its bombing campaign in Iran during the weekend, prompting a drop in oil prices and boosting global investor confidence.

Against the yen JPY=, the U.S. dollar was down 0.2% at 163.585 yen, its biggest decline since July 10. The euro EUR= was up 0.3% at $1.1403, while the British pound GBP= rose 0.2% to $1.3352.

Oil prices sank in early Asian trade, with Brent crude LCOc1 tumbling 4.2% to $92.74 after the U.S. military temporarily halted its two-week long strikes. Iran will halt its own attacks as long as the U.S. does the same, a senior Iranian official told Reuters on Sunday, following a China-led push to resume stalled diplomatic efforts in Pakistan to end the war.

"Markets remain on the edge around the U.S.-Iran conflict and the path of oil prices," MUFG analysts wrote in a research report. "While it is difficult to know for sure how things will pan out, our base case remains for de-escalation over time for several reasons and as such for oil prices to decline."

In other major currencies, the New Zealand dollar NZD= was 0.1% higher at $0.5791, while its Australian counterpart AUD=was up by the same magnitude at $0.6996.

The U.S. dollar index =USD, which measures the greenback's strength against a basket of six currencies, was flat at 101.21 at the start of a week packed with central bank meetings, including that of the Federal Reserve.

Traders' bets that the Federal Reserve could raise interest rates at its upcoming policy meeting eased a little compared to last week.

Fed funds futures are pricing an implied 33.7% probability of a 25-basis-point hike at the next two-day meeting ending on Wednesday, down from 37.4% on Friday, according to the CME Group's FedWatch tool.

In cryptocurrencies, bitcoin BTC= was up 1% at $65,286.74, while ether ETH= climbed 1.7% to $1,945.22.

-Reporting by Gregor Stuart Hunter;Editing by Shri Navaratnam/Reuters