The dollar was steady on Monday, while the yen flirted with the crucial 160 per dollar level, as nervous investors took stock of the escalating Iran war, with all eyes on the latest deadline from US President Donald Trump to reopen the Strait of Hormuz.
In an expletive-laden Easter Sunday social media post, Trump threatened to target Iran's power plants and bridges on Tuesday if the strategic waterway is not reopened, setting a precise deadline of 8 p.m. Tuesday Eastern Time (0000 GMT).
With most of Asia and Europe closed for holiday on Monday, liquidity is likely to be thin, with investor focus on the possibility of a ceasefire after a media report suggested a last-ditch push from negotiators was underway.
"Trump's latest deadline itself is bearish not because investors think war is guaranteed tomorrow if Iran does not open the strait, but because every new ultimatum makes the disruption look longer, stickier and more macro-negative," said Charu Chanana, chief investment strategist at Saxo in Singapore.
The euro was at $1.1523, while sterling last fetched $1.3211. The dollar index, which measures the US currency against six rivals, was slightly lower at 100.12.
The Australian dollar was 0.3% higher at $0.69045, wobbling near the two-month low that it hit last week.
In the kind of mixed messaging that has baffled supporters, foes and financial markets alike, Trump told Fox News on Sunday that Iran was negotiating, with a deal possible by Monday.
Axios reported the US, Iran and regional mediators are discussing terms of a potential 45-day ceasefire that could lead to a permanent end to the war.
Global markets have been rattled since the US-Israel war on Iran broke out at the end of February, with Tehran effectively closing the Strait of Hormuz, a key waterway that is a thoroughfare through which about a fifth of the world's total oil and liquefied natural gas passes.
"If the strait is reopened fully around that time (Trump's Tuesday deadline), oil will fall sharply and risk will rally hard," said Prashant Newnaha, senior rates strategist at TD Securities.
"However, if the US escalates, expect global markets to reprice sharply. It's wait-and-watch in what's turning out to be a binary event."
The closure has caused oil prices to surge well above $100 per barrel, stoking fears of high inflation and upending rates outlooks across the world. Worries about the hit to economic growth have also weighed as stagflation risks swirl.
Traders are now no longer pricing a move from the Federal Reserve well into the second half of 2027, compared with expectations of two rate cuts in 2026 at the start of the year.
Data last week suggested US labor market conditions remained calm in March, though economists warned that a prolonged war in the Middle East posed a downside risk.
YEN WATCH
The Japanese yen was flat at 159.55 per US dollar, not far from the 21-month low that it hit last week as traders watch for indications of Tokyo intervening in the wake of strong warnings from officials in the past few days.
Japanese Finance Minister Satsuki Katayama on Friday put currency traders on notice, saying the government stands ready to act against speculative moves in foreign exchange markets as volatility has risen "significantly."
Still, many doubt the firepower of any intervention at a time when geopolitical turmoil in the Middle East is fueling relentless demand for the safe-haven dollar. The yen is down 1.5% since the war started, stuck near the 160 level.
Speculators have also been adding to their short yen positioning, with the latest weekly data showing a short position worth $5.7 billion, the highest since July 2024, when Japan last intervened in the FX markets.
