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Key Takeaways
- Dollar softens: The DXY and dollar index futures both fell 0.2%, retreating after modest weekly gains.
- Holiday-thinned trade: U.S., Hong Kong, and South Korean markets closed, keeping volumes muted.
- “Largely negotiated”: Trump claimed the U.S.-Iran framework deal is mostly done, covering the war’s end and Hormuz reopening.
- Rubio’s “pretty solid”: The Secretary of State described the framework as solid while awaiting Tehran’s response.
- Military threat lingers: Both Trump and Rubio hinted at strikes if Iran rejects the terms.
- “No rush” stance maintained: Washington reiterated there is no urgency to finalize.
- Iran acknowledges progress: Tehran noted negotiations are advancing but rejected uranium handover demands.
- Oil crash hits dollar: Tumbling crude prices eroded energy inflation fears, reducing rate hike bets and dollar demand.
- Euro and pound rise: Both gained 0.3-0.4% in the improved risk environment.
- Indian rupee leads Asia FX: USD/INR fell 0.5% after RBI Governor Malhotra said the rupee looks undervalued and the bank will do “whatever is required.”
- RBI’s earlier intervention: The central bank sold tens of billions of dollars in May to stem rupee weakness.
- Yen and yuan firm: USD/JPY fell 0.2% and USD/CNY dropped 0.2%.
- Aussie dollar surges: AUD/USD jumped 0.5%, recouping losses after a weak April jobs print.
- Singapore dollar rises: USD/SGD fell 0.2% after stronger-than-expected Q1 GDP data.
The dollar fell in holiday-thinned trade on Monday as increasing hopes for a U.S.-Iran peace deal brought down yields and boosted risk appetite.
Trading volumes were muted on account of holidays in the United States, Hong Kong, and South Korea.
Market sentiment improved substantially after U.S. officials flagged progress toward ending the Iran war and reopening the Strait of Hormuz.
Dollar Cools as Trump and Rubio Flag Progress Toward U.S.-Iran Deal
The dollar index and dollar index futures fell 0.2% apiece on Monday, retreating after logging some gains last week.
U.S. President Donald Trump said over the weekend that the U.S. and Iran had “largely negotiated” a framework agreement to end their conflict and reopen the Strait of Hormuz.
Separately, U.S. Secretary of State Marco Rubio said the U.S. and Iran had a “pretty solid” framework deal to reopen Hormuz and discuss Iran’s nuclear activities.
But Rubio, like Trump, hinted at potential military action if Iran did not accept a deal. He also reiterated Trump’s comments in that the U.S. was in no hurry to finalize an agreement.
Iran had over the weekend acknowledged progress in negotiations but largely rejected U.S. demands to hand over its enriched uranium stockpile.
Despite the mixed signals, markets still cheered a potential end to the Iran war, sending oil prices sharply lower. This weighed on the dollar, as markets priced out expectations of prolonged energy-fueled inflation that could drive up interest rates later in the year.
A softer dollar and tumbling oil prices greatly benefited broader currency markets. The euro and the pound both rose between 0.3% and 0.4% in holiday-thinned trading.
Asia FX Firms; Indian Rupee Supported by Hawkish RBI Talk
The Indian rupee’s USD/INR pair was among the best performers, falling 0.5% and pulling back sharply from record highs after Reserve Bank of India Governor Sanjay Malhotra said the rupee appeared undervalued and that the central bank will do “whatever is required” to stabilize local currency markets.
The RBI had intervened earlier in May, selling tens of billions of dollars to stem weakness in the rupee. But intervention only brought limited relief.
Other Asian currencies also firmed after losing some ground last week. The Japanese yen’s USD/JPY pair fell 0.2%, while the Chinese yuan’s USD/CNY dropped 0.2%.
The Australian dollar’s AUD/USD pair surged 0.5%, recouping some losses from last week following a weak April jobs print.
The Singapore dollar’s USD/SGD pair fell 0.2% after first-quarter gross domestic product data came in much stronger than expected.
