The US dollar advanced on Monday as the initial round of US-Iran talks fostered optimism for a potential peace agreement; concurrently, the British pound moved higher amid volatile trading following UK Prime Minister Keir Starmer's announcement of his impending resignation.
The United States commenced a 60-day sanctions waiver for Iran on Monday, following the first round of discussions under a preliminary peace framework. Meanwhile, the situation in Lebanon, which had previously prompted Iran to announce the closure of the Strait of Hormuz, was described by officials as currently calm.
US crude oil fell 1.84% to $75.19 per barrel, while Brent crude dropped to $77.93 per barrel, marking a daily decline of 3.29%, as progress toward an agreement alleviated supply-side concerns.
The US Dollar Index, which measures the greenback against a basket of currencies, rose 0.16% to 101, while the euro declined 0.36% to $1.1427.
European Central Bank President Christine Lagarde remarked that the inflation shock facing the eurozone is too significant to ignore, yet not substantial enough to elevate long-term inflation expectations or trigger a dangerous second-round effect.
Pound Rebounds Amid Political Uncertainty
The British pound recovered from an intraday low of $1.3175 after Labour Party leader Keir Starmer stated he would step down. This move paves the way for rival Andy Burnham, who could become the country's seventh prime minister in a decade as early as next month.
The pound was last quoted at $1.3243, up 0.08%.
Yen Nears Four-Decade Low
The US dollar gained 0.14% against the Japanese yen to 161.50, having earlier touched 161.92—a level just above the two-year low set last week. A breach above 161.96 would push the yen to its weakest level since 1986.
The yen has experienced several sharp swings, during which it briefly strengthened against the dollar.
Following the Bank of Japan's widely anticipated interest rate hike last week, Japanese Finance Minister Shunichi Suzuki stated on Monday that authorities are prepared to respond appropriately to currency movements at any time.
The yen has relinquished the gains achieved after an intervention on April 30, as a shift in the Federal Reserve's policy focus has led traders to increase bets on rate hikes this year, bolstering the dollar.
"One should be alert to potential intervention by the Bank of Japan, or even supportive comments from the US side," said Chandler.
Both Deutsche Bank and BofA Global Research adjusted their Federal Reserve forecasts on Monday to incorporate a rate hike in September; BofA anticipates the Fed will raise rates by 25 basis points each in September, October, and December.
According to CME Group's FedWatch tool, markets are currently pricing in a 38.5% probability of at least a 25-basis-point rate hike at the Fed's July meeting, up from 6.4% a week ago.