The US Dollar (USD) strengthened against major currencies including the Japanese Yen (JPY), Euro (EUR), and British Pound (GBP) at the start of the week, as persistent geopolitical risks and uncertainty over US-Iran negotiations fueled safe-haven demand for the Greenback [1][2][3]. The USD/JPY pair climbed back toward the 159.50 level, approaching a four-week high set last Thursday, amid flat Japanese corporate capital spending in Q1 and ongoing concerns about Middle East tensions, particularly the Israel-Hezbollah conflict and disruptions in the Strait of Hormuz [1]. Iranian officials confirmed that no deal has been finalized with the US, with key sticking points including Iran's nuclear program and the strategic Strait of Hormuz, and negotiations are ongoing through regional mediators [1][2][3].
US President Donald Trump has reportedly sought to change several terms of the proposed US-Iran agreement, focusing on stricter regulations for the Strait of Hormuz and the removal of highly enriched uranium, as reported by the BBC and Axios [2][3]. A senior US official indicated that Iran's formal response to these changes could take up to three days [3]. Iranian Foreign Minister Abbas Araghchi emphasized that no assessment of the negotiations can be made until a clear outcome is reached, while Iran's parliament speaker Mohammad Bagher Ghalibaf stated that Tehran will not accept any deal unless it guarantees the rights of the Iranian people [3].
The uncertainty surrounding the US-Iran deal has supported the USD's safe-haven status, pressuring the EUR/USD and GBP/USD pairs. The EUR/USD fell to around 1.1650 after two days of gains, with market caution and the lack of diplomatic progress cited as key headwinds [3]. In the Eurozone, flash May inflation rose in France, Italy, and Spain, exceeding the European Central Bank's (ECB) 2% target, while German inflation slowed. ECB Meeting Minutes revealed some members favored an April rate hike, reinforcing expectations for a 25-basis-point increase on June 11 [3].
The GBP/USD pair traded flat near 1.3450, with the British Pound stabilizing after a volatile week. The Bank of England (BoE) has scaled back rate hike expectations following softer inflation data and a rise in the unemployment rate to 5.0% in April [2]. BoE Governor Andrew Bailey stated that the central bank is in no rush to raise rates amid ongoing Middle East uncertainty and weak UK growth, emphasizing the need to monitor the situation and adjust policy as required [2].
Market participants are now focused on upcoming US macroeconomic releases, including the ISM Manufacturing PMI, as well as German Retail Sales data, which could provide further direction for the USD and EUR/USD pair, respectively [1][3]. Speculation about potential intervention by Japanese authorities to support the Yen may limit further downside for the currency, but the overall backdrop remains supportive of USD strength in the near term [1].
CONCLUSION
Safe-haven flows into the US Dollar have intensified amid unresolved US-Iran negotiations and heightened geopolitical risks, pressuring the Yen, Euro, and Pound. Central banks in the UK and Eurozone are signaling caution, with rate hike expectations subdued. The market remains highly sensitive to further developments in the Middle East and upcoming economic data releases.