BY COMFORT OGBONNA
The U.S. dollar hovered near its weakest level in a week during Asian trading on Monday, as markets reacted to growing speculation that a potential agreement to ease tensions between the United States and Iran could eventually lead to the reopening of the Strait of Hormuz and further relief in global oil markets.
At the same time, oil prices fell sharply below the $100-per-barrel mark, extending losses triggered by renewed optimism that diplomatic progress may be underway, even as Washington continued to temper expectations of any imminent breakthrough.
The mixed signals from policymakers and markets created a cautious but broadly risk-positive trading environment across currencies, commodities, and equities, although liquidity was reduced due to public holidays in several major financial centers.
Against the Japanese yen, the dollar slipped 0.2% to 158.9 yen, while the euro strengthened 0.3% to $1.1636. The British pound also gained 0.3% to $1.3476, reflecting broader weakness in the greenback.
Commodity-linked currencies also benefited from improved sentiment. The Australian dollar rose 0.5% to $0.7162, while the New Zealand dollar added 0.4% to $0.5869 as investors leaned into higher-yielding and risk-sensitive assets.
Analysts said the shift reflected early signs of renewed risk appetite in global markets, driven largely by easing energy price expectations and hopes that geopolitical tensions in the Middle East may eventually de-escalate.
“There are early signs that risk sentiment remains supported, early Sydney trade revealing a broad-based selloff in the USD, with ‘riskier’ currencies like the AUD benefitting as a result,” analysts at Westpac said in a research note.
The U.S. dollar index, which tracks the greenback against a basket of six major currencies, fell 0.1% to an intraday low of 98.95, its weakest level since May 18. Traders said the dollar’s softness reflected both easing demand for safe-haven assets and shifting expectations around global inflation pressures tied to energy markets.
Oil markets were the primary driver of sentiment, with Brent crude falling 5.4% to $97.91 per barrel and U.S. West Texas Intermediate sliding 5.7% to $91.10 per barrel. Both benchmarks remained under pressure as traders priced in the possibility of improved supply flows if diplomatic talks between Washington and Tehran succeed.
The Strait of Hormuz remains one of the world’s most strategically important shipping routes, handling a significant portion of global oil exports. Any reduction in tensions around the corridor tends to quickly influence global energy prices, inflation expectations, and broader financial market positioning.
Over the weekend, conflicting statements from U.S. President Donald Trump added to market uncertainty. On Saturday, he said on social media that Washington and Tehran had “largely negotiated” a memorandum of understanding on a potential agreement, with the aim of reopening the critical waterway.
However, just a day later, Trump struck a more cautious tone, saying on Truth Social that the U.S. blockade on Iranian shipping in the Strait of Hormuz would remain in place until a formal agreement was fully completed, signed, and certified.
Iranian officials did not immediately respond to the latest comments, leaving investors to interpret mixed signals from both sides.
Despite the uncertainty, markets continued to lean toward cautious optimism that some form of deal may eventually be reached, even if the timeline remains unclear and negotiations remain fragile.
Chris Weston, head of research at Pepperstone Group, said investors have become increasingly accustomed to reacting to headlines rather than expecting immediate resolutions.
“Markets have become conditioned to be incredibly patient on a tangible breakthrough,” Weston said. “But the base case of a deal remains firm, with the weekend news providing further conviction, even if the timing remains unclear.”
He added that while volatility remains elevated, investors appear more willing to price in gradual diplomatic progress rather than assume a breakdown in talks.
Elsewhere in markets, digital assets also reflected improved risk sentiment. Bitcoin rose 0.5% to $76,961.76, while ether remained largely unchanged at $2,091.65.
Traders said crypto markets were following broader risk trends, with liquidity conditions and macroeconomic expectations continuing to play a major role in short-term price movements.
Overall, Monday’s trading session highlighted a market still caught between optimism over potential diplomatic progress and uncertainty over whether those negotiations will lead to a lasting resolution. While the weaker dollar and lower oil prices pointed to improving sentiment, analysts warned that conditions could quickly reverse if talks stall or geopolitical tensions escalate again.