The dollar weakened against major currencies Monday as U.S. President Donald Trump announced a five-day delay in potential military strikes against Iran, following what he characterized as “incredibly fine talks” between the two nations. The move eased immediate concerns about disruptions to global oil supplies and prompted a slight rebound in risk assets. The development comes after weeks of escalating tensions and threats of military action, raising fears of a wider conflict in the Middle East.
Trump revealed his decision on his Truth Social platform, stating he had directed the Department of Defense to postpone attacks on Iranian power plants and energy infrastructure. This announcement occurred just hours before a self-imposed deadline for Iran to “fully open” the Strait of Hormuz, a vital waterway for global oil transport. The president had previously threatened to destroy Iranian power plants if the Strait was not opened, further escalating the situation.
However, Iran’s foreign ministry swiftly denied any negotiations had taken place, reiterating that the country’s conditions for de-escalation remain unchanged. This discrepancy highlights the complex and often contradictory signals emanating from both Washington and Tehran. Despite the denial, financial markets reacted positively to the pause in immediate military action, suggesting investors are cautiously optimistic about the possibility of a diplomatic resolution.
“Everything seems so fleshed out that I think the market is having a hard time believing it’s complete fiction,” said Steven Englander, head of global G10 FX research and North America macro strategy at Standard Chartered in Novel York. “Whether they are close to a deal as Trump laid out is a different story, but I think the market is going with the idea that there has been some sort of communication going on.”
Dollar Weakens Across the Board
The dollar index, which measures the U.S. Currency against a basket of peers, fell 0.4 percent to 99.08. On Friday, the index had recorded its first weekly decline since the start of the conflict, as concerns about rising oil prices and potential inflationary pressures prompted central banks to adopt a more hawkish monetary policy, bolstering other currencies. The Jerusalem Post reported on Trump’s initial statements regarding the talks.
Specifically, the euro rose 0.4 percent to $1.1616, reaching its highest level since March 11. The Japanese yen strengthened, with the dollar 0.6 percent weaker at 158.30 yen, retreating from the 160 yen level that had prompted concerns about potential intervention from the Bank of Japan. Sterling likewise saw gains, rising 0.71 percent to $1.3436, its highest since March 10.
Oil Prices and Market Recovery
Global stock and energy markets also experienced a recovery following Trump’s announcement. The price of Brent crude oil, a benchmark for international oil prices, fell around 12 percent to $98.65 a barrel, after earlier dropping to $96. U.S. Treasury yields also retreated from multi-month highs, indicating a reduced appetite for safe-haven assets.
According to a report from USA Today, U.S. Envoys Steve Witkoff and Jared Kushner engaged in talks with a “top person” in the Iranian regime on Sunday, with further discussions planned by phone on Monday. The identity of the Iranian official remains undisclosed, but it is confirmed they are not Iran’s new Supreme Leader Mojtaba Khamenei.
A reporter for Axios reported that representatives from Turkey, Egypt, and Pakistan had met with Witkoff, separately from meetings between Iranian Foreign Minister Abbas Araghchi and his counterparts. The Mehr News Agency reported that Iran’s foreign ministry acknowledged “initiatives” to reduce tensions.
Potential Fiscal Risks Remain
Despite the initial market relief, analysts caution that the situation remains fluid and the risk of further escalation persists. Elias Haddad, global head of markets strategy at Brown Brothers Harriman in London, warned that if de-escalation does not occur, the energy shock could morph into a broader fiscal shock. He noted that the market is “starting to sniff out the more encouraging outlook,” but emphasized the need for further clarity.
Senator Jack Reed of Rhode Island, the top Democrat on the Armed Services Committee, criticized the Trump administration’s decision to lift sanctions on stranded Iranian oil, estimating it could provide Iran with a $14 billion windfall. This move, intended to mitigate rising fuel costs, has drawn criticism from some lawmakers who argue it could further embolden Iran.
The situation remains highly volatile, and the coming days will be crucial in determining whether the current pause in tensions can be translated into a more sustainable diplomatic solution. The five-day deadline imposed by President Trump will be a key moment to watch, as will any further communication between U.S. And Iranian officials.
What comes next will depend heavily on whether the reported back-channel communications can yield concrete progress toward addressing the underlying issues driving the conflict. The market will continue to closely monitor developments for any signs of renewed escalation or a potential breakthrough in negotiations.
Share your thoughts on this developing story in the comments below.
