The dollar remained broadly firm, supported by expectations that U.S. interest rates will stay elevated for longer. The dollar index hovered just below 101, close to its highest level in a year, reflecting sustained investor appetite for the currency amid what analysts continue to describe as “U.S. exceptionalism” in economic performance.
At the centre of market attention were reports that mediating countries Qatar and Pakistan helped facilitate an agreement between Washington and Tehran on a potential roadmap toward a comprehensive peace deal. The proposed framework reportedly aims to resolve tensions within 60 days, injecting cautious optimism into global markets.
Oil prices responded with a mild decline, slipping about 1.6% to $79.3 per barrel, as traders priced in reduced geopolitical risk. However, losses were limited by lingering uncertainty after renewed rhetoric from U.S. President Donald Trump regarding the conflict and Iran’s announcement of a temporary closure of the Strait of Hormuz — a key global shipping route.
Despite the diplomatic momentum, market participants remained wary that the situation could still reverse quickly.
In Europe, the British pound experienced volatility after political developments involving Prime Minister Keir Starmer, who said he would resign, triggering speculation about a leadership transition. The currency briefly fell to a session low of $1.318 before recovering to around $1.324 by the end of trading.
“The market is watching gilts more than the pound,” said Kit Juckes, chief FX strategist at Société Générale. “The medium-term reaction is that the market is going to get nervous at some point about fiscal policy.”
He added that sterling could remain under pressure due to a combination of higher inflation and elevated interest rates, alongside uncertainty about future policy direction.
In Asia, the Japanese yen continued to draw attention after hovering near 161.74 against the dollar — close to its weakest level in decades. A break beyond 161.96 would mark its lowest point since 1986, underscoring the pressure from persistent interest rate gaps between Japan and the United States.
Japanese authorities signalled readiness to intervene if volatility becomes excessive. Finance Minister Satsuki Katayama said officials were “prepared to respond appropriately to currency moves at any time.”
However, analysts remain sceptical about the effectiveness of intervention alone. “Intervening against the tide of a hawkish Fed and strong U.S. fundamentals could prove costly and futile,” said Matt Simpson, senior market analyst at StoneX.
The yen’s weakness has been reinforced by expectations that U.S. rates may remain high, with traders increasingly betting on at least one further Federal Reserve hike this year. That outlook has strengthened demand for the dollar, pushing speculative positioning in favour of the currency to its highest level in 16 months, worth nearly $30 billion, according to Commodity Futures Trading Commission data.
Looking ahead, analysts say currency markets are likely to remain driven by interest rate expectations and geopolitical developments, with limited room for sustained moves unless either monetary policy expectations or global risk conditions shift decisively.