FOREX-Dollar firms as investors monitor US-Iran talks; yen nears 40-year low

The US dollar steadied on Monday as US-Iran talks fueled investor optimism, while the yen approached 40-year lows, amidst concerns over possible intervention and Middle East tensions.

The dollar ​was steady on Monday as the first round of U.S.-Iran ‌talks ​fuelled investor optimism for a deal, while the yen inched towards 40-year lows, keeping traders on edge over possible intervention from Tokyo. A joint statement from mediating nations Qatar and Pakistan said the U.S. and Iran agreed to a roadmap towards a final ‌deal to end their conflict within 60 days. But talks were tense as investors fretted about threats from U.S. President Donald Trump to restart the war in the Middle East and Tehran's announcement it had closed the vital Strait of Hormuz.

Oil prices were down 1%, leaving Brent crude futures at $79.8 a barrel. "The physical market remains tight and that should provide some ‌support, but flows in FX and commodities will continue to be heavily influenced by developments in the energy complex," said Chris Weston, head of research at Pepperstone.

Sterling ‌fell 0.3% to $1.32, as British Prime Minister Keir Starmer said he was considering his political future after rival Andy Burnham's decisive parliamentary by-election victory. "Current signals suggest Burnham would adhere to the existing fiscal framework, although delivery will matter more than guidance," they said in a note.

YEN NEAR 40-YEAR LOW The euro was down 0.27% at $1.1443, while the Japanese yen remained in the spotlight, softening to 161.66 per dollar, just shy of a two-year ⁠low reached ​last week. A break beyond 161.96 would take ⁠the yen to its weakest level since 1986. Japanese Finance Minister Satsuki Katayama said on Monday that authorities were prepared to respond appropriately to currency moves at any time.

"The MOF may be getting sore necks watching ⁠USD/JPY surge into the 2024 high," said Matt Simpson, senior market analyst at StoneX. "Yet they may also feel powerless to do anything about it — as intervening against the tide of a hawkish Fed ​and strong U.S. fundamentals could prove costly and futile." The yen has erased gains made after a round of interventions from April 30, when Tokyo spent a ⁠record 11.7 trillion yen ($72.44 billion), as a hawkish tilt by the Federal Reserve has led traders to ramp up bets on rate increases this year. CIBC head of G10 currency strategy Jeremy Stretch said even if the ⁠BOJ ​raises rates more quickly, the fact that traders now see the Fed as likely to raise U.S. rates at least once this year means the dollar is likely to remain firm. "It's still the case that rate spreads are not particularly favourable, and if you're in a world where U.S. exceptionalism is still the watch-word, then the ⁠path of least resistance, outside of any intervention risk, would be for dollar/yen (to trade) higher," he said. Investors have piled bullish dollar positions in the latest week. Data from the ⁠Commodity Futures Trading Commission shows speculators now have ⁠the biggest bet on a rising dollar in 16 months, worth nearly $30 billion. The dollar index, which tracks the U.S. currency against six others, was at 101, around its highest in a year. The index is up nearly 3% this year, aided by ‌safe-haven flows and expectations that interest ‌rates will stay higher for longer.