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THE US dollar traded largely unchanged on Monday after posting a weekly loss, with currency markets remaining cautious amid ongoing geopolitical negotiations in the Middle East and growing anticipation over key US economic indicators.
Reuters reported that the dollar index had eased last week on optimism surrounding potential diplomatic progress between the United States and Iran, particularly discussions linked to reopening the Strait of Hormuz, a critical global shipping route for oil and liquefied natural gas.
Oil prices also surged in early trading after reports that Israel had ordered troop movements deeper into Lebanon amid continued clashes with Hezbollah, further heightening geopolitical risk premiums in energy markets.
US President Donald Trump said on Friday that he would soon decide on a proposed framework to extend a ceasefire agreement involving Iran, a development closely watched by financial markets given its implications for global energy supply and inflation trends.
Attention is now shifting towards upcoming US non-farm payrolls data, due later this week, which is expected to provide further guidance on the health of the labour market and the Federal Reserve’s policy outlook.
Policymakers have indicated that renewed conflict-driven inflationary pressures could strengthen the case for further interest rate increases.
“USD will be heavily influenced by developments in the US-Iran war and the U.S. non-farm payrolls report for May,” said Joseph Capurso, head of FX at Commonwealth Bank of Australia.
“Once the Strait is reopened, over time the oil price will fade and interest rates will return as a greater influence on the USD,” he added.
In currency markets, the dollar index, which measures the US currency against a basket including the euro and yen, was flat at 99.00 following last week’s 0.4 per cent decline.
The euro slipped 0.08 per cent to 1.165 US dollars, while the yen weakened 0.08 per cent to 159.41 per dollar. Sterling also edged lower, down 0.07 per cent at 1.3449 US dollars.
Market participants are also closely monitoring potential outcomes from ceasefire diplomacy, including a proposed 60-day extension of the US-Iran truce that would allow maritime traffic to resume through the Strait of Hormuz while wider disputes are negotiated.
A senior Iranian source told Reuters that an agreement was nearing completion but had not yet been formally approved, underscoring lingering uncertainty in negotiations.
US labour market expectations point to unemployment holding at 4.3 per cent with job gains of around 85,000 in May, according to a Reuters poll, reinforcing expectations of a slowing but still resilient economy.
Financial markets are currently pricing in the possibility that the Federal Reserve may eventually resume rate hikes, potentially lifting its benchmark range from 3.50 per cent to 3.75 per cent by year-end, reversing earlier expectations of rate cuts prior to the escalation of the conflict.
In Europe, European Central Bank policymaker Isabel Schnabel said last week that further rate increases may still be warranted even if diplomatic progress is made in the Middle East. She is scheduled to speak in South Korea later on Monday.
In Japan, attention is focused on Bank of Japan Governor Kazuo Ueda’s upcoming speech on Wednesday for signals on monetary tightening, ahead of a widely anticipated policy meeting next week.
While internal consensus remains unclear, market sources suggest the central bank may favour pausing its reduction of government bond purchases as part of a cautious policy approach.
Separately, Japan’s finance ministry confirmed that authorities spent 11.7 trillion yen (73.40 billion US dollars) last month intervening in currency markets to support the yen, validating long-held market speculation of heavy official action. - June 1, 2026
