The U.S. dollar traded close to a 10-day low against major peers on Monday after a preliminary U.S.-Iran agreement aimed at ending their conflict triggered a drop in oil prices and improved investor risk sentiment.
U.S. and Iranian officials said Sunday they had reached a broad framework to end hostilities, ease the U.S. blockade on Iran and reopen the Strait of Hormuz, a key global energy shipping route.
The accord is expected to be formally signed Friday in Switzerland, but traders remained wary as full details had yet to emerge and negotiations over Iran’s nuclear program were pushed into later talks.
Oil markets reacted swiftly, with Brent crude sliding roughly 5% to $82.90 a barrel, reflecting expectations of improved supply flows if tensions ease further.
The dollar index, which tracks the currency against a basket of major peers including the euro and yen, was steady at 99.51, holding near its weakest level since early June.
“There’s still a lot of scope for disappointment,” said Nick Rees, head of macro research at Monex Europe. “We haven’t seen clarity on the nuclear issue. If that becomes clearer in the coming days, sentiment could improve further.”
“But without that, it’s difficult to assume the deal will fully hold. So the market reaction in FX is likely to stay relatively contained,” he added.
The euro strengthened 0.36% to $1.1610, while sterling rose 0.15% to $1.3423, both hovering near recent highs.
The Japanese yen held steady at 160.13 per dollar, remaining close to a level widely viewed by traders as a trigger point for possible intervention from Tokyo.
Currency markets are also focused on a heavy week of central bank meetings, with the Federal Reserve, Bank of Japan, Bank of England and Reserve Bank of Australia all due to announce policy decisions.
The Fed is widely expected to keep its benchmark rate in the 3.5% to 3.75% range on Wednesday, though investors will closely watch Chair Kevin Warsh’s comments for signals on the future path.
According to CME FedWatch data, traders have reduced bets on further tightening, now pricing in about a 50% chance of a hike in December, down sharply from more than 70% a week earlier.
“Central bankers will take some comfort from easing geopolitical risks, which reduces upside inflation pressure,” said Prashant Newnaha, senior rates strategist at TD Securities in Singapore. “But uncertainty remains, and it’s not yet a clean shift in the outlook.”
The Bank of Japan is expected to lift rates to 1% at its meeting ending Tuesday, marking a 31-year high, while also signaling continued vigilance on inflation.
Elsewhere, both the Bank of England and the Reserve Bank of Australia are forecast to leave interest rates unchanged.
