Dollar Movements Amid Geopolitical Tensions

By Laura Matthews

NEW YORK (Reuters) – The dollar strengthened against the safe-haven yen and Swiss franc on Monday but weakened against most major currencies as investors monitored the fighting between Israel and Iran for signs of potential escalation into a broader regional conflict and prepared for a week filled with central bank meetings.

Tehran has urged Gulf leaders to press U.S. President Donald Trump to influence Israel towards a ceasefire in exchange for Iran’s flexibility in nuclear talks. This development has contributed partly to the dollar recovering losses against the yen and Swiss franc.

Nonetheless, market participants contemplated the possibility that Iran might attempt to disrupt the Strait of Hormuz, a crucial passage for oil shipping, potentially leading to broader economic risks due to disturbances in the energy-rich Middle East.

Meanwhile, the U.S. military has deployed a significant number of refueling aircraft to Europe to provide Trump with options as Middle Eastern tensions rise, and the U.S. aircraft carrier Nimitz is heading to the region as part of a pre-planned deployment.

The dollar, which had been regarded as a safe haven during times of geopolitical or financial distress, was recently up 0.38% to 144.65 yen after rising nearly 0.4% earlier on Monday. The euro increased by 0.23% to $1.1576.

The U.S. currency also rose against the Swiss franc to 0.8136 franc, while an index measuring the dollar against six peers decreased by 0.25% to 98.02.

David Song, a senior strategist at Forex.com, noted, “Beyond the consolidation in U.S. dollar exchange rates, the lack of volatility in risk-sensitive currencies like the Japanese yen and Swiss franc suggests that investor confidence has not been shaken by the conflict between Iran and Israel.”

U.S. crude futures fell by 2.5% following a rally last Friday after Israel’s preemptive strike on Iran. Marc Chandler, chief market strategist at Bannockburn Global Forex, stated, “I still think that the surprise of the day is that oil, not gold nor the U.S. dollar, has reacted positively to the turmoil. The greenback might be losing its safe-haven status, but today is not the test.”

Risk-sensitive currencies like the Australian and New Zealand dollars were up 0.6% and 0.9%, respectively, while the Norwegian crown was flat after reaching its highest point since early 2023 earlier in the day.

On Friday, investors began buying back into the dollar, which has dropped more than 9% against a basket of six other currencies this year due to Trump’s efforts to alter the global trade order, which has heightened economic uncertainties.

Analysts, however, expressed doubt regarding the sustaining of this trend until there is more clarity on tariff issues. Chandler remarked, “The 800-pound gorilla in the room is the U.S. tariff policy. We have the July 9 date for the so-called reciprocal tariffs to end, and this uncertainty looms over the market.”

The U.S. Federal Reserve is set to announce its latest policy decisions on Wednesday, with the Israel-Iran conflict complicating matters for policymakers. Investors remain anxious over Trump’s trade deal deadline in about three weeks, alongside pending agreements with major trade partners like the EU and Japan. They will look for progress in bilateral meetings with the U.S. during the Group of Seven leaders’ conference in Canada.

Central Bank Meetings

Several central bank monetary policy decisions are on the agenda this week, with much attention on the Fed. It is largely expected that the Fed will maintain current borrowing costs, but investors will keenly observe its assessments regarding recent data indicating a softening economic activity, despite ongoing significant inflationary risks.

The Bank of Japan is expected to announce its interest rate decision following its two-day meeting on Tuesday, with traders largely anticipating no policy changes. There are expectations that the central bank might consider tapering its government bond holdings next fiscal year, aligning with the Japanese government’s push for increased domestic ownership.

Central banks in Britain, Switzerland, Sweden, and Norway are also scheduled to announce their policy decisions during the week.

Currency Bid Prices (16 June 07:36 p.m. GMT)