NEW YORK: The dollar was softer in choppy trading on Monday, as investors monitored the fighting between Israel and Iran for signs that it could escalate into a broader regional conflict and braced for a week packed with central bank meetings.
As both Iran and Israel showed no signs of backing off from their attacks, market participants mulled the prospect that Tehran might seek to choke off the Strait of Hormuz - the world’s most important gateway for oil shipping. This could raise broader economic risks from disruptions in the energy-rich Middle East.
The dollar, which until recently had always been the ultimate safe haven in times of geopolitical or financial turmoil, slipped 0.3% to 143.73 Japanese yen after rising nearly 0.4% earlier on Monday. The euro rose 0.5% to $1.1604.
The US currency was also softer against the Swiss franc at 0.8104 franc, while an index that measures the dollar against six peers declined 0.5% to 97.74.
“We’re looking for the US dollar to stay subdued, as the Israel-Iran conflict looks to be holding at a steady state so far,” said John Velis, head of Americas macro strategy at BNY Markets.
“We find it noteworthy not to see a significant haven bid for the US dollar as well as for US Treasuries, neither of which rallied as one might expect when geopolitical risk flares up as it has over the past several days.”
Oil prices fell 3.3%, following Friday’s 7% rally to near six-month highs in the wake of Israel’s preemptive strike on Iran. “Despite this Israeli-Iranian war, that seems to have escalated, the dollar, gold and oil prices are lower on the day. The markets have been focusing on the central banks,” said Marc Chandler, chief market strategist at Bannockburn Global Forex.
Currencies that are positively correlated to risk such as the Australian and the New Zealand dollars were 0.9% and 1.2% higher, respectively, while the oil-exposed Norwegian crown was up just 0.3%, after hitting its highest since early 2023 earlier in the day. On Friday, investors had bought back into the dollar, which has lost more than 9% in value against a basket of six other currencies this year as US President Donald Trump’s move to reshape the global trade order heightened economic uncertainty.
But analysts were less convinced that the trend could continue until there was more clarity on the tariff front.
“The 800-pound gorilla in the room is the US tariff policy,” Chandler said. “We’ve got the July 9 date that the so-called reciprocal tariffs are supposed to end. ... And so that sort of hangs over the market.”
The US Federal Reserve gives its latest policy decision on Wednesday, with the Israel-Iran conflict adding complexity for policymakers.
Investors remain nervous over Trump’s deadline on trade deals due in about three weeks, while agreements with major trade partners, including the European Union and Japan, are yet to be signed.
They will look for progress in any bilateral meetings with the US on the sidelines of a Group of Seven leaders’ meeting in Canada.
Top of the agenda this week is a host of central bank monetary policy decisions, with the spotlight on the Fed.
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