U.S. dollar steady as markets eye Mideast talks outcome

The U.S. dollar was little changed Monday after a weekly fall as investors weighed Middle East peace efforts and guidance on central bank interest rates.

Currency markets opened the week cautiously, balancing geopolitical headlines against the economic calendar. Traders looked for clarity on potential timelines for rate moves as they assessed whether tensions could spill over into inflation.

Oil climbs on regional escalation

The dollar index slipped last week amid expectations of a potential U.S.–Iran arrangement to reopen the Strait of Hormuz, a key oil shipping route. In early trade, oil prices rose after Israel ordered its forces to push deeper into Lebanon in fighting against Iran-backed Hezbollah.

Energy supply concerns kept crude supported, sharpening the inflation lens for currency markets. A durable reopening of the Strait could eventually cool prices, easing one channel of pressure on global inflation gauges.

On the diplomatic track, U.S. President Donald Trump said Friday he would soon decide on a proposal to extend the Iran ceasefire. Market participants awaited concrete outcomes from peace contacts, mindful that any breakthrough could quickly shift commodity and currency dynamics.

Rates outlook turns to U.S. data

Attention will center on U.S. jobs figures due later this week, a pivotal input for the Federal Reserve’s policy stance. Fed officials have signaled rates may need to rise if the conflict further accelerates already-elevated inflation.

The interaction between labor strength, wage growth, and energy costs remains central to the inflation outlook. A resilient payrolls print would complicate the case for policy easing, while a softer read could temper rate expectations.

Market commentary and next steps

Joseph Capurso, head of FX strategy at Commonwealth Bank of Australia, said the dollar’s near-term path will hinge on developments in the U.S.–Iran conflict and May nonfarm payrolls. He added that, if the Strait is reopened, oil’s impact could diminish over time and interest rate differentials would likely reassert their influence on the greenback.

That sequencing underscores a familiar pattern: geopolitics can jolt prices, but monetary policy often dictates medium-term currency trends. Lower oil would relieve some inflation pressure, yet a strong labor report could revive bets on further tightening, supporting the dollar through higher yields.

For now, traders are calibrating positions to rapidly evolving headlines. Signals from talks, any movement on a ceasefire extension, and updates on troop deployments will frame the risk backdrop alongside U.S. data releases.

Volatility may persist as energy markets respond to each diplomatic cue. The next key catalysts are the May payrolls report, subsequent Fed commentary, and any announcement on the Strait of Hormuz that could reset the balance between oil and interest-rate drivers.