Escalating hostilities between the United States and Iran in the Persian Gulf, with the United Arab Emirates also becoming involved, drove oil prices higher and boosted the US dollar against all G-10 currencies except the Norwegian krone. The Bloomberg Dollar Spot Index initially climbed more than 0.2% following reports of ship attacks, before paring its gains.
Earlier on Monday, the dollar weakened after former President Trump stated that US representatives were engaged in "very positive discussions" with Iran, suggesting a potential outcome that would be "very positive for everyone," though he provided no specifics. Brent crude oil briefly surpassed $115 per barrel before its advance moderated, coinciding with Iran conducting its first attack near the UAE in nearly a month.
The Japanese yen fell for a second consecutive day, reaching 157.15 per dollar after having gained as much as 0.8% to 157.72 earlier. Traders remained on high alert for any indications of another round of intervention by Japanese authorities to support the currency. When questioned about potential market intervention on Monday, Japan's Finance Minister Shunichi Suzuki declined to comment but reiterated that Tokyo stands ready to take decisive action against speculative currency movements.
For the third day in a row, options traders increased their bets on a stronger yen, with a key gauge now showing the most bullish stance on the currency in over three months.
The euro declined 0.3% against the dollar to 1.1692, marking a second day of losses. Conversely, the euro gained 0.1% against the British pound to 0.86397, also rising for a second day. According to the European Central Bank's quarterly Survey of Professional Forecasters, inflation in the euro area is projected to average 2.7% this year before moderating close to the ECB's 2% target next year.
ECB Governing Council member Yannis Stournaras commented that concerns about the eurozone potentially slipping into a recession are "real and justified," citing disruptions to supply chains caused by the Middle East conflict.
The Australian dollar retreated after a slight increase, falling 0.5% to 0.7168 against the US dollar. Similarly, the New Zealand dollar erased a 0.5% gain, ending down 0.5% at 0.5872. Prasanna Gai, an external member of the Reserve Bank of New Zealand's Monetary Policy Committee, noted that supply shocks, such as the crisis in the Strait of Hormuz, could push the neutral interest rate higher.
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