Dollar Weakens as Oil Prices Drop on Hormuz Deal Optimism

By Gregor Stuart Hunter and Lucy Raitano

SINGAPORE/LONDON, May 25 (Reuters) – The dollar eased against major currencies on Monday as optimism over a potential agreement to reopen the Strait of Hormuz pushed oil prices below $100 per barrel, even as the United States and Iran downplayed the likelihood of an imminent deal.

Many markets, including those in the U.S., Hong Kong, Britain, and much of Europe, were closed for public holidays, contributing to reduced liquidity.

The dollar fell 0.2% against the Japanese yen to 158.91. The euro rose 0.33% to $1.1641, and the British pound gained 0.55% to $1.3499. The Australian dollar advanced 0.58% to $0.717, while the New Zealand dollar added 0.5% to $0.5874. The U.S. dollar index declined approximately 0.3% to 98.969.

U.S. Secretary of State Marco Rubio indicated that a favorable agreement with Iran was possible or Washington would pursue alternative measures. Iran’s foreign ministry stated that while conclusions had been reached on many topics in potential talks with the U.S., this did not signify Tehran was on the verge of signing a deal.

“If and when a peace deal is secured, the USD will weaken for a period. However, once that impulse washes through, the USD will re-strengthen due to its stronger fundamentals against major currencies,” noted Samara Hammoud, international economist and currency strategist at CBA.

Oil markets tumbled on deal hopes, with Brent crude down 5% at $98.43 a barrel and U.S. West Texas Intermediate at $88.83 a barrel, off 4.8%.

Over the weekend, conflicting signals emerged regarding a potential agreement. President Donald Trump stated on social media that a memorandum of understanding on a peace deal with Iran had been “largely negotiated,” with both sides and mediators in Pakistan reporting progress.

However, on Sunday Trump said the U.S. blockade on Iranian ships in the Strait of Hormuz would “remain in full force and effect until an agreement is reached, certified, and signed.”

“Markets have become conditioned to be incredibly patient on a tangible breakthrough, but the base case of a deal remains firm, with the weekend news providing further conviction, even if the timing remains unclear,” said Chris Weston, head of research at Pepperstone Group Ltd in Melbourne.

He added that if Brent crude drops toward $90, it would reinvigorate risk assets as near-term inflation expectations decline and bets on 2027 rate hikes are pared back.

European Central Bank policymaker Yiannis Stournaras said on Monday that if euro zone inflation temporarily but significantly overshoots the ECB’s target, monetary policy should be adjusted cautiously in a more restrictive direction.

Traders are looking ahead to key data due this week, including the U.S. ADP employment report on Tuesday and euro zone confidence surveys on Thursday.

Elsewhere, bitcoin rose 0.9% to $77,271.20, while ether gained 1.1% to $2,114.30.

(Reporting by Gregor Stuart Hunter in Singapore and Lucy Raitano in London; Editing by Aidan Lewis, Gareth Jones, and Mark Potter)

Source link