Singapore: The U.S. dollar rose at the beginning of the week after hopes for progress in US-Iran negotiations faded, unsettling markets and pushing oil prices up.
The situation changed when President Donald Trump cancelled a planned envoy visit to Islamabad, stating that Iran could reach out if it wanted to negotiate an end to the two-month war. With the key Strait of Hormuz closed, investors prepared for ongoing disruptions to global energy supplies.
Brent crude futures rose about 2% to $107.49 a barrel, and U.S. West Texas Intermediate increased by $1.77 to $96.17 in early trading. The dollar index moved up to 98.623, while the euro dropped 0.14% to $1.1706 and the pound fell 0.12% to $1.35155.
“The markets have been priced for peace, but the peace might not hold,” warned Kyle Rodda, senior financial expert at Capital.com. “If it doesn’t, investors will have to re-price quite violently.”
The Japanese yen stayed near the important 160 mark at 159.51 per dollar, just before the Bank of Japan’s policy meeting this week. Traders are concerned that Tokyo might step in if the yen drops further.
Analysts warn that if the Strait of Hormuz stays closed, the risk to global growth increases. “While mild stagflation is baked in, the clock is ticking on whether this turns into a more severe bout like the 1970s,” said Shane Oliver, chief economist at AMP in Sydney.
Central banks are now in the spotlight. The Bank of Japan is expected to keep rates steady but may raise them as early as June. The Federal Reserve, European Central Bank, and Bank of England will also meet this week, and investors are watching for their views on how the war affects inflation and growth.