FOREX: Safe-haven dollar gains as peace talks falter, US to blockade Hormuz

SINGAPORE - The safe-haven U.S. dollar advanced broadly in early Asian trade on Monday as peace talks between the United States and Iran broke down and the U.S. Navy prepared a blockade of Iranian ports.

The euro (EUR=) fell 0.3% to $1.1684, while the British pound (GBP=) slipped 0.5% to $1.3398. The risk-sensitive Australian dollar (AUD=) lost 0.6% to $0.7030, and the New Zealand dollar (NZD=) declined 0.4% to $0.5816.

U.S. President Donald Trump said on Sunday that the U.S. Navy would begin blockading the Strait of Hormuz after marathon talks with Iran failed to reach a deal to end the war, jeopardizing a fragile two-week ceasefire. The U.S. Central Command said American forces would start implementing the blockade on all maritime traffic entering and exiting Iranian ports from 10 a.m. ET (1400 GMT) on Monday.

"Early and thin FX trading this morning is showcasing a risk-off mood, with the broad-based rally in the USD in response," analysts at Westpac wrote in a research note.

Separately, the Hungarian forint (HUF=) surged after veteran nationalist leader Viktor Orban lost power to the upstart centre-right Tisza Party in Sunday’s national election, ending his 16-year rule.

The currency climbed as much as 1.8% to 314.89 against the dollar, its strongest level since January, and jumped 2.2% against the euro (EURHUF=R) to its firmest level in four years.

"Hungarian assets have reacted positively to the news in early trading, in part because the outcome implies that EU fund inflows into Hungary will be fully released relatively quickly," analysts at Goldman Sachs wrote in a research report. "EU funds from the current 2021–2027 budget account for roughly 3% of GDP per year, with nearly half currently frozen."

The U.S. dollar index (DXY), which measures the greenback against a basket of six major currencies, was steady at 99.056, near its highest level since April 7.

Against the Japanese yen (JPY=), the dollar rose 0.4% to 159.83 yen as yields on Japan’s benchmark 10-year government bonds jumped 5.5 basis points to 2.49%, the highest level in nearly three decades.

-Reporting by Gregor Stuart Hunter; Editing by Sonali Paul and Kevin Buckland/Reuters