FOREX: Dollar steady as traders fret about escalating Iran war

SINGAPORE – The U.S. dollar remained steady on Monday, while the Japanese yen hovered near the critical 160 per dollar mark as investors reacted to escalating tensions in Iran. Market attention was focused on U.S. President Donald Trump’s latest deadline to reopen the strategic Strait of Hormuz.

In an expletive-filled Easter Sunday post on social media, Trump warned that he would target Iran’s power plants and bridges if the waterway is not reopened by 8 p.m. Eastern Time (0000 GMT) on Tuesday.

With many Asian and European markets closed for the holiday, liquidity was expected to be thin, although risk-off sentiment dominated trading early in the week.

“Trump's latest deadline is bearish not because investors expect an immediate war, but because every new ultimatum makes the disruption seem longer, stickier, and more negative for the global economy,” said Charu Chanana, chief investment strategist at Saxo in Singapore.

“Investors are seeing this as an oil-to-inflation-to-rates issue. That’s why the dollar remains the safest haven, while gold, bonds, and yen have looked far less reliable than during a typical geopolitical scare.”

Currency and Market Movements

The euro fell 0.13% to $1.151.

Sterling last traded at $1.3187.

The U.S. dollar index, which tracks the currency against six major rivals, was at 100.2.

The Australian dollar gained 0.13% to $0.6893, remaining near the two-month low reached last week.

Global markets have been rattled since the U.S.-Israel conflict with Iran erupted in late February. Tehran has effectively blocked the Strait of Hormuz, a key shipping lane that carries about a fifth of the world’s oil. This has sent oil prices soaring past $100 per barrel, stoking inflation fears and disrupting interest rate expectations worldwide.

Traders are now pricing in no Federal Reserve rate changes until the second half of 2027, compared with earlier expectations of two rate cuts in 2026.

U.S. labor data last week suggested job conditions remained stable in March. However, economists warned that a prolonged Middle East conflict could threaten growth.

“Despite a better-than-expected payroll report, only 260,000 more people are working compared with 12 months ago, indicating the jobs market has stalled,” said ING economist James Knightley. “With the Middle East conflict showing little sign of ending, heightened geopolitical and market concerns are unlikely to encourage businesses to hire now.”

Yen Under Pressure

The Japanese yen weakened to 159.77 per dollar, close to a 21-month low, as traders monitored the possibility of government intervention.

Japanese Finance Minister Satsuki Katayama recently warned that the government is prepared to act against speculative moves in the foreign exchange market, citing “significant” volatility.

Still, analysts doubt that intervention could counter strong demand for the safe-haven dollar amid Middle East tensions. The yen has dropped 1.5% since the conflict began and remains near the 160 level.

Speculators are also increasing their short positions against the yen, with weekly data showing $5.7 billion in short positions—the highest since Japan’s last FX intervention in July 2024.

-Reporting by Ankur Banerjee in Singapore; Editing by Sam Holmes/Reuters