FOREX-Dollar drifts lower as oil falls on Hormuz deal optimism

The dollar ​fell against major currencies on Monday as hopes of ‌a ​deal to reopen the Strait of Hormuz pushed oil prices below $100 per barrel, even as the U.S. and Iran played down the chances of reaching an agreement soon. Meanwhile many global markets - including in the U.S., ‌Hong Kong, the UK and the majority of Europe - are closed for holidays on Monday, thinning liquidity. Against the yen, the U.S. dollar was down 0.2% at 158.94 yen, while the euro rose 0.31% to $1.11639 and the British pound gained 0.42% to $1.34865. The Australian dollar advanced 0.5% at $0.7162, while its kiwi counterpart tacked on ‌0.37% to $0.58685.

The U.S. dollar index fell about 0.2% to 99.059. As diplomatic efforts to find a resolution to the Iran war continue, U.S. ‌Secretary of State Marco Rubio said there would either be a good agreement or Washington would deal with the country in "another way." Iran's foreign ministry spokesperson said conclusions had been reached on many topics discussed in a potential memorandum of understanding with the U.S., but this did not mean Tehran was close to signing an agreement. Oil markets tumbled on hopes of ⁠a peace ​deal, with Brent crude prices down 4.5% ⁠to $98.9 a barrel while U.S. West Texas Intermediate was at $88.98 a barrel, off 4.4%. Over the weekend, there were conflicting signs on a peace deal. U.S. President Donald Trump said ⁠on social media on Saturday that a memorandum of understanding on a peace deal with Iran had been "largely negotiated," with both countries and mediators in Pakistan reporting progress. However, ​on Sunday Trump said on Truth Social the U.S. blockade on Iranian ships in the Strait of Hormuz would "remain in full force and ⁠effect until an agreement is reached, certified, and signed".

"Markets have become conditioned to be incredibly patient on a tangible breakthrough, but the base case of a deal remains firm, with the ⁠weekend ​news providing further conviction, even if the timing remains unclear," said Chris Weston, head of research at Pepperstone Group Ltd in Melbourne. He added that if Brent drops towards $90 this would give risk assets renewed life as short-term inflation expectations fall and implied rate hike bets for 2027 ⁠are pared back. European Central Bank policymaker Yiannis Stournaras said on Monday that if euro zone inflation overshoots the ECB target temporarily but significantly, there should ⁠be a cautious adjustment of monetary ⁠policy in a more restrictive direction. Traders are looking ahead to some key data due this week including a U.S. ADP employment report on Tuesday and euro zone confidence surveys on Thursday. Elsewhere, bitcoin was up 0.9% at $77,307.01, ‌while ether rose 1% to $2,111.44.

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