FOREX: Dollar steady as first round of US-Iran talks ends, pound dips on Starmer uncertainty

SINGAPORE — The U.S. dollar held steady on Monday after the first round of talks between the United States and Iran concluded with an agreement to pursue a final deal within 60 days. However, concerns over renewed tensions in the Middle East continued to weigh on investor sentiment.

A joint statement from mediators Qatar and Pakistan said Washington and Tehran agreed on a roadmap toward a comprehensive agreement, raising hopes for a resolution to a conflict that has clouded the global economic outlook.

The statement also said both sides agreed on a mechanism to end fighting in Lebanon and established a communication channel to help ensure safe passage for commercial vessels through the strategically important Strait of Hormuz.

Oil prices fell more than 1% following the announcement, with Brent crude futures trading at $79.36 per barrel.

“The physical market remains tight and that should provide some support, but flows in foreign exchange and commodities, particularly gold, will continue to be heavily influenced by developments in the energy market,” said Chris Weston, head of research at Pepperstone.

The British pound slipped 0.21% to $1.3210 as investors assessed political uncertainty in the United Kingdom. Prime Minister Keir Starmer is reportedly considering his political future following rival Andy Burnham’s decisive parliamentary election victory.

Strategists at OCBC said they do not expect the pound’s initial decline to persist and maintained a neutral outlook on the currency.

“Current signals suggest Burnham would adhere to the existing fiscal framework, although implementation will matter more than guidance,” the bank said in a note.

Yen Near Multi-Decade Low

The euro pared losses and traded at $1.1465. Meanwhile, the Australian dollar was little changed at $0.7011 after earlier weakness, while the New Zealand dollar traded at $0.5730.

The Japanese yen weakened to 161.55 per dollar, hovering near a two-year low reached last week. A move beyond 161.96 would push the currency to its weakest level since 1986.

Japanese Finance Minister Satsuki Katayama said authorities remain prepared to respond to excessive currency movements if necessary.

“The Ministry of Finance may be growing increasingly concerned as dollar-yen approaches its 2024 high,” said Matt Simpson, senior market analyst at StoneX. “However, intervening against the backdrop of a hawkish Federal Reserve and strong U.S. economic fundamentals could prove costly and ineffective.”

The yen has erased gains made after Japanese authorities intervened in the market earlier this year, as expectations of additional U.S. interest rate increases continue to support the dollar.

Shen Li, head of foreign exchange sales for Asia-Pacific at State Street, said the dollar-yen exchange rate remains largely driven by the widening interest rate gap between the United States and Japan.

“Much of the focus remains on the Federal Reserve and how its policy outlook evolves,” Shen said. “Upward pressure on dollar-yen is likely to continue.”

U.S. Treasury yields also remained elevated. The yield on the two-year Treasury note rose to 4.2276%, its highest level since early 2025, as traders priced in approximately 43 basis points of rate hikes this year, including a fully priced 25-basis-point increase by September. -Reporting by Ankur Banerjee in Singapore; Editing by Himani Sarkar and Muralikumar Anantharaman/Reuters