Market Overview

The U.S. dollar traded steadily at the start of the week after the first round of talks between the United States and Iran ended. Although both sides showed some positive signals toward a roadmap for a final agreement within 60 days, investor sentiment remained cautious.

The main concerns came from unresolved risks, including Iran’s announcement that it had closed the Strait of Hormuz and the possibility that conflict in the Middle East could reignite if negotiations break down.

According to Reuters, the dollar remained supported as markets continued to worry about the fragile nature of the U.S.-Iran agreement, while investors closely monitored developments around the Strait of Hormuz and energy prices.

U.S.-Iran Talks Show Progress, but Risks Remain

According to a joint statement from Qatar and Pakistan, the United States and Iran agreed on a roadmap toward a final deal within 60 days. The two sides also agreed on a mechanism to end fighting in Lebanon and opened a communication channel to help ensure safe passage for commercial ships through the Strait of Hormuz.

This helped ease some concerns in the energy market. Brent crude fell after the announcement and traded below USD 80 per barrel at certain points. However, the physical market remains relatively tight, meaning volatility in commodities and foreign exchange could remain elevated.

Pound Weakens on UK Political Uncertainty

The British pound fell about 0.21% to around USD 1.3210 as investors assessed political uncertainty in the UK. Markets are watching whether Prime Minister Keir Starmer could face political pressure after rival Andy Burnham’s decisive parliamentary election victory.

However, some currency strategists believe the pound’s initial negative reaction may not extend too far if the current fiscal framework is maintained. What markets need to watch is not only policy guidance, but also how effectively it can be delivered in practice.

Yen Near Multi-Decade Weakness

The Japanese yen remained under pressure, trading around 161.55 per dollar, close to its weakest levels in years. If USD/JPY breaks above 161.96, the yen could fall to its weakest level since 1986.

Japan’s Ministry of Finance continued to signal that it is ready to respond if currency movements become excessive. However, intervention may be difficult at this stage, as the Fed remains hawkish and strong U.S. fundamentals continue to support the dollar.

Interest Rate Differentials Remain the Main Driver

Pressure on the yen is mainly driven by the interest rate gap between the United States and Japan. As markets raise expectations that the Fed could continue increasing interest rates this year, U.S. Treasury yields have climbed and supported the dollar.

The yield on the 2-year U.S. Treasury note rose to its highest level since early 2025, around 4.2276%. Markets are currently pricing in around 43 basis points of rate hikes this year, with a 25-basis-point increase almost fully priced in by September.

Conclusion

The U.S. dollar remains resilient as investors balance positive signals from U.S.-Iran negotiations with continued geopolitical risks in the Middle East.

Meanwhile, the British pound is under pressure from domestic political uncertainty, while the Japanese yen continues to weaken due to the interest rate gap with the United States. In the short term, Fed policy, U.S. Treasury yields, the Strait of Hormuz, and the progress of U.S.-Iran negotiations will remain key drivers for the foreign exchange market.

📌 This content is for market perspective sharing only and does not constitute a buy or sell recommendation or investment advice.

Source: Reuters