GLOBAL currency markets opened the week with cautious optimism after the United States and Iran concluded their first round of negotiations in Switzerland, boosting hopes of a diplomatic breakthrough and tempering concerns over escalating tensions in the Middle East.
The dollar held broadly steady on Monday after mediators Qatar and Pakistan announced that Washington and Tehran had agreed to a roadmap aimed at reaching a comprehensive agreement within 60 days, offering investors fresh optimism that geopolitical risks threatening global inflation and monetary policy could begin to recede.
The negotiations came after weeks of heightened anxiety over President Donald Trump's warnings that military operations in the Middle East could resume and Tehran's announcement that it had closed the strategically vital Strait of Hormuz.
According to a joint statement issued by the mediators, both sides also agreed to establish a mechanism to end hostilities in Lebanon and open a direct communications channel to help safeguard commercial shipping through the contested waterway.
Reuters reported on Monday that the easing of geopolitical tensions pushed Brent crude prices down almost two per cent, with futures last trading at US$79.09 per 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.
Despite improving market sentiment, the British pound weakened 0.22 per cent to US$1.3209 as investors assessed political uncertainty in the United Kingdom following reports that Prime Minister Keir Starmer was considering his future after Andy Burnham's decisive parliamentary by-election victory.
Currency strategists at OCBC said they did not expect sterling's initial decline to develop into a prolonged sell-off.
"Current signals suggest Burnham would adhere to the existing fiscal framework, although delivery will matter more than guidance," they said in a note.
The euro slipped 0.15 per cent to US$1.14555, while the Australian dollar eased 0.17 per cent to US$0.7005. The New Zealand dollar was little changed at US$0.57275.
Attention remained firmly focused on the Japanese yen, which weakened to 161.66 against the dollar, leaving it just below last week's two-year low.
A move beyond 161.96 would push the currency to its weakest level since 1986, intensifying speculation that Japanese authorities could intervene to stabilise the market.
Japanese Finance Minister Satsuki Katayama reiterated on Monday that the government stood ready to respond swiftly to excessive currency movements.
"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 surrendered nearly all the gains achieved after Japan's record ¥11.7 trillion (US$72.44 billion) currency intervention on 30 April, as expectations of tighter United States monetary policy have encouraged investors to increase bets on further Federal Reserve interest rate increases this year.
Shen Li, Head of Foreign Exchange Sales for Asia-Pacific at State Street, said the dollar's continued strength against the yen was primarily driven by the widening interest rate gap between the two economies.
"A lot of the eyes are on the Federal Reserve, how they're going to shift their policy ... I think the upward pressure for dollar/yen will continue."
United States Treasury yields also continued to climb, with two-year yields rising to 4.2276 per cent, their highest level since early 2025.
Financial markets are now pricing in 43 basis points of additional Federal Reserve tightening this year, with a 25-basis-point increase fully anticipated by September.
The dollar index, which measures the US currency against six major peers, stood at 100.9, remaining close to the one-year high reached last week.
The index has gained around 2.7 per cent this year, supported by safe-haven demand and expectations that US interest rates will remain elevated for longer. - June 22, 2026
