Dollar Rises on Iran Tensions
The safe-haven dollar strengthened on Monday following the breakdown of peace talks between the U.S. and Iran, as the American Navy readied a blockade of Iranian ports. However, the greenback reduced its gains as the trading session progressed. The euro was down 0.3% at $1.1689, while the British pound fell 0.4% to $1.3403; both rallied off earlier lows. The Australian dollar, sensitive to risk, fell by 0.5% to $0.7037, while the New Zealand dollar decreased by 0.3% to $0.5824. President Donald Trump on Sunday announced that the U.S. Navy would begin blockading the Strait of Hormuz following unsuccessful negotiations with Iran to secure a deal to conclude the war, putting a delicate two-week ceasefire at risk.
The U.S. Central Command announced that U.S. forces will commence the blockade of all maritime traffic entering and exiting Iranian ports starting at 10 a.m. on Monday. “We did expect negotiations to be difficult and lengthy but assumed that this weekend’s talks would be the beginning of a process which would, at least, result in a degree of situational stabilisation,” analysts wrote in a report. “This perspective was evidently misguided.” analyst stated that “we would not be surprised if the negotiations are restarted relatively quickly given the current ceasefire timeline.” Meanwhile, the Hungarian forint surged following the defeat of veteran nationalist leader Viktor Orban, who lost power to the upstart centre-right Tisza party in Sunday’s national election after 16 years in office. The currency rallied as much as 1.7% to 314.55 against the dollar – its strongest level since January – and jumped 2% against the euro to its firmest in three years.
Hungarian assets have responded favorably to the news in early trading, partly due to the implication that EU fund inflows into Hungary will be fully released in a timely manner,” analysts noted in a report. “EU funds from the current 2021-27 budget account for roughly 3% of GDP per year, with nearly half currently frozen.” The U.S. dollar index, which measures the greenback’s strength against a basket of six currencies, slipped 0.1% to 98.999, holding near its highest level since April 7. In relation to the yen, the U.S. dollar increased by 0.3% to 159.68, as yields on Japan’s benchmark 10-year government bonds surged by 5.5 basis points to 2.49%, marking the highest level in nearly three decades.
Traders are awaiting a speech from Bank of Japan Governor Kazuo Ueda later on Monday, which may provide clues about how the central bank will react to the energy shock caused by the Iran war, as the prospect dims of a rate hike at its next meeting ending on April 28.”The risk of policy errors is relatively high in Japan and Europe, which means that money will tend to return to USD assets for lack of better alternatives,” analysts wrote in a note.
