Oil tumbles, dollar slips after US-Iran peace framework boosts market confidence

HONG KONG: Global financial markets reacted positively on Monday after the United States and Iran announced a preliminary framework aimed at ending their conflict, sending oil prices sharply lower and weighing on the US dollar as investors moved towards riskier assets.

The greenback fell to its weakest level in 10 days against a basket of major currencies as easing geopolitical tensions reduced demand for traditional safe-haven assets. The shift in sentiment followed Sunday’s announcement by officials from Washington and Tehran that they had agreed on the basis of a deal to halt hostilities, lift the US blockade of Iran and reopen the strategically important Strait of Hormuz.

While a memorandum formalising the agreement is expected to be signed in Switzerland later this week, investors remained cautious as key details have yet to be disclosed. Negotiations over Iran’s nuclear programme are also expected to continue separately.

Oil markets registered the strongest reaction to the news. Brent crude dropped more than four per cent to $83.82 a barrel as traders anticipated the gradual restoration of energy supplies and shipping through the Gulf. The decline in oil prices also eased concerns that prolonged disruptions could fuel global inflation.

The euro gained 0.3pc against the dollar during Asian trading, while the British pound strengthened by 0.2pc. Commodity-linked currencies also advanced, with the Australian dollar climbing 0.6pc and New Zealand’s currency rising 0.4pc as investors embraced a more optimistic outlook.

Although the dollar index later steadied around 99.55, it had earlier fallen to its lowest level since June 5. Market participants said the prospect of reduced tensions in the Middle East had weakened support for the US currency.

Analysts cautioned, however, that uncertainty remains over how quickly normal oil flows can resume. They noted that reopening shipping routes and restoring supply chains is likely to be a gradual process that could take months rather than weeks.

The Japanese yen remained under pressure, with the dollar rising above the closely watched 160 level. Currency traders continue to monitor the possibility of intervention by Japanese authorities should the yen weaken further.

Attention is now turning to a busy week for central banks. Policymakers at the US Federal Reserve, the Bank of Japan and the Reserve Bank of Australia are all scheduled to announce interest-rate decisions.

The Federal Reserve is widely expected to leave borrowing costs unchanged, though investors will closely scrutinise comments from policymakers for clues on the future direction of rates. Expectations of another US rate increase later this year have eased following the apparent reduction in inflation risks linked to energy prices.

Meanwhile, Australia’s central bank is also expected to keep rates steady, while the Bank of Japan is widely forecast to raise interest rates and signal further tightening measures as it continues efforts to contain domestic inflation.