The U.S. dollar maintained its position on Monday following a weekly decline, as market participants monitored developments in peace negotiations in the Middle East and anticipated indications regarding the timing of central bank actions. The six-currency dollar index experienced a slight decline last week amid optimism regarding a potential agreement between the United States and Iran to facilitate the reopening of the Strait of Hormuz shipping lane for oil. Oil surged in early trading as Israel directed troops to advance deeper into Lebanon, coinciding with claims of new strikes exchanged between the U.S. and Iran. U.S. jobs data later in the week will be closely monitored as Federal Reserve officials indicate that the U.S. central bank may need to consider raising rates if the war exacerbates the already elevated inflation levels. USD will be significantly impacted by the unfolding events in the U.S.-Iran conflict and the upcoming U.S. nonfarm payrolls report for May,” stated Joseph Capurso. Once the Strait is reopened, over time the oil price will fade and interest rates will return as a greater influence on the USD,” he added in a note.

The dollar index of the greenback against a basket of currencies including the yen and the euro, increased by 0.04% to 99.05, following a decline of 0.4% last week. The euro decreased by 0.13%, now standing at $1.1644. The yen experienced a decline of 0.13%, settling at 159.48 against the dollar. Sterling slipped 0.07% to $1.3449. The U.S. reported that it carried out “self-defence strikes” on Iranian radar and drone control sites over the weekend. In response, Iran stated on Monday that its aerospace force had targeted an air base involved in an attack. The hostilities ensued following U.S. President Donald Trump’s announcement on Friday regarding an imminent decision on a proposed deal to prolong the ceasefire with Iran. U.S. Secretary of State Marco Rubio engaged in discussions with Lebanese President Joseph Aoun and Israeli Prime Minister Benjamin Netanyahu regarding a strategy for “gradual de-escalation,” as reported by a U.S. official on Sunday. Netanyahu stated on Sunday that he has commanded troops to advance deeper into Lebanon in the ongoing conflict with Hezbollah.

Markets are anticipating that the Fed’s upcoming decision will involve an increase in its key rate, contrasting with prior expectations for a reduction prior to the onset of the Iran war. Outgoing Fed Governor Jerome Powell cautioned in a speech on Sunday regarding the politicisation of monetary policy, while Beth Hammack, Lorie Logan, and Mary Daly are among the Fed officials scheduled to speak later in the week. “The lineup of Federal Reserve speakers throughout the week should continue to reinforce a balanced two-way policy approach, with officials remaining open to both rate hikes and rate cuts depending ​on incoming data,” Chris Weston noted in a report. U.S. nonfarm payrolls figures due on June 5 are anticipated to reveal an unemployment rate of 4.3% along with a rise of 85,000 jobs, as per a poll. Later on Monday, the Institute for Supply Management’s PMI gauge of manufacturing activity is anticipated to have increased to 53 in May, up from 52.7 in the prior month.

In a speech earlier today in South Korea, European Central Bank board member Isabel Schnabel expressed concerns that the growing adoption of stablecoins, primarily linked to the U.S. dollar, could jeopardise the euro and the monetary policy autonomy of certain nations. Last week, she stated that the ECB ought to increase rates this month, regardless of whether a U.S.-Iran peace agreement is achieved. A speech by Bank of Japan Governor Kazuo Ueda on Wednesday is eagerly awaited for indications regarding the central bank’s potential decision on a rate increase in the upcoming week. While there is no consensus yet within the BOJ on the decision, a pause in the central bank’s taper of government bond purchases is increasingly viewed as a favoured option, according to two sources familiar with the deliberations. The Australian dollar remained steady at $0.7182 against the US dollar, whereas New Zealand’s kiwi experienced a decline of 0.33%, settling at $0.5968.