The dollar was largely unchanged on Monday while the Japanese yen traded near the key 160-per-dollar level, as investors reacted to rising tensions in the Middle East and a fresh ultimatum from U.S. President Donald Trump concerning the Strait of Hormuz.
In a forceful social media message posted on Easter Sunday, Mr. Trump warned he would target Iran's power plants and bridges if the strategic waterway was not reopened by Tuesday 8 p.m. Eastern Time (0000 GMT). With many Asian and European markets closed for the holiday on Monday, liquidity was expected to remain thin, and a broad risk-off tone prevailed at the start of the trading week.
Market strategists linked the president's deadline to a growing sense that the confrontation could produce a protracted period of disruption. "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. "Investors are treating this as an oil-to-inflation-to-rates problem, which is why the dollar remains the cleanest haven for now, while gold, bonds and yen have all looked far less reliable than in a normal geopolitical scare."
Currency moves were measured in early trading. The euro dipped 0.13% to $1.151, and sterling was last quoted at $1.3187. The dollar index, which tracks the currency against six peers, stood at 100.2. The Australian dollar inched 0.13% higher to $0.6893, lingering near the two-month low it recorded last week.
Global markets have been unsettled since the U.S.-Israel conflict with Iran erupted at the end of February. Tehran has effectively closed the Strait of Hormuz - a narrow choke point that handles roughly a fifth of global oil consumption. That disruption has pushed oil prices well above $100 per barrel, feeding concerns about rising inflation and forcing a reassessment of interest rate outlooks across major economies.
Investors are weighing both inflationary pressures and potential damage to economic growth, raising fears that stagflation could take hold. Those worries have altered expectations for U.S. monetary policy: traders no longer anticipate a Fed rate move until well into the second half of 2027, a significant shift from the outlook at the start of the year when markets priced in two rate cuts in 2026.
Recent U.S. data indicated that labour market conditions were broadly steady in March, though analysts cautioned that a prolonged Middle East conflict posed a downside risk. "Despite the better-than-expected outcome in the payrolls report, there are only 260,000 more people in work today than 12 months ago, implying that the jobs market has effectively stalled during a period when the U.S. growth story was healthy," said James Knightley, an economist at ING.
Knightley added that with the Middle East conflict showing little sign of an imminent resolution, the overlay of heightened geopolitical, economic and market angst was unlikely to encourage businesses to resume substantial hiring immediately. "Our concern is that with the Middle East conflict showing little sign of coming to an imminent conclusion, an overlay of heightened geopolitical, economic and market angst is not going to incentivise business to suddenly start hiring now," he said.
Yen Under Scrutiny
The Japanese yen weakened to 159.77 per U.S. dollar, close to the 21-month low reached last week, as market participants monitored the possibility of official intervention. Tokyo officials have issued repeated warnings in recent days, with Japanese Finance Minister Satsuki Katayama on Friday advising currency traders that the government stood ready to act against speculative moves as volatility had risen "significantly."
Nevertheless, many market observers questioned whether any intervention could match the strength of dollar demand generated by geopolitical turmoil in the Middle East. Since the conflict began, the yen has fallen about 1.5% and remained stuck near the 160 mark. Speculative short positions against the yen have increased - the latest weekly data showed a short position valued at $5.7 billion, the largest since July 2024, the last time Japan is known to have intervened in foreign exchange markets.
Market Context and Broader Effects
Investors are treating the situation as a chain of risks that begins with crude oil supply and moves through inflation to central bank policy. That linkage helps explain why the dollar has been perceived as a comparatively reliable haven in the current episode, while traditional safe-haven assets such as gold and government bonds have not behaved as cohesively.
The inflation pathway tied to elevated oil prices has implications for interest rate trajectories, corporate cost structures, and consumer purchasing power. Energy markets, foreign exchange, government bonds and equity sectors sensitive to growth expectations are all being watched closely as the geopolitical picture evolves.
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