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United States Dollar Index weakens below 100.00 as Trump says new Iran talks would begin Monday

  • US Dollar Index softens to around 99.70 in Monday’s Asian session. 
  • Trump said new Iran talks would begin Monday after he called off a planned attack on Iran.
  • US NFP data will be in the spotlight on Friday. 

The US Dollar Index (DXY), an index of the value of the US Dollar (USD) measured against a basket of six world currencies, currently trades near 99.70 in the Asian trading hours on Monday. The DXY declines amid improved risk sentiment. Traders brace for the release of the US ISM Manufacturing Purchasing Managers Index (PMI) report, which will be released later on Monday.

US President Donald Trump said on Sunday that he had called off an attack on Iran and that talks between the two sides would happen on Monday. Trump suggested an agreement on reopening the Strait of Hormuz may be close and added that he would also continue to pursue a path to end Iran’s nuclear program.

Hopes of a breakthrough between Washington and Tehran could undermine a safe-haven currency such as the US Dollar against its rivals in the near term.  

All eyes will be on the US employment data on Friday. This report could offer some hints on the health of the labor market. Economists expect Nonfarm Payrolls (NFP) to increase by 91,000 in July, while the Unemployment Rate is projected to rise to 4.3% during the same period. In case of stronger-than-expected outcomes, this could help limit the DXY’s losses. 

The Federal Reserve (Fed) held the interest rates unchanged at its July policy meeting last week. Markets have priced in nearly a 64.7% chance of a US rate hike in September, down from about 77% before the July Fed meeting, according to the CME FedWatch tool.

Dollar seen under renewed pressure as Fed rate expectations fade

According to analysts at Commerzbank, the Dollar is likely to come back under pressure once tensions with Iran subside, as they judge that the Fed is “unlikely to raise rates as markets have priced in.” In their view, the easing of geopolitical risk would remove a key support for the currency, leaving it more vulnerable to disappointment on the US rate path.

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Australian Dollar remains stronger following China’s RatingDog Manufacturing PMI data

  • The Australian Dollar remains strong despite China’s manufacturing PMI easing to 50.9 in July.
  • The US Dollar faces pressure following Japan’s $58.97 billion yen-buying intervention and easing risk aversion.
  • US-Iran diplomatic claims remain contested, keeping market sentiment cautious as Iranian forces stay on high alert.

AUD/USD depreciates after opening at a bullish gap, remaining in the positive territory and trading around 0.7030 during the Asian hours on Monday. The currency pair maintains its gains as the Australian Dollar (AUD) remained resilient, supported by economic developments in China, Australia’s major trading partner.

China’s RatingDog Manufacturing Purchasing Managers’ Index (PMI) eased to 50.9 in July from 51.7 in June, missing market expectations of 51.5; it continued to signal expansion in manufacturing activity.

Aussie inflation surprise seen as fuel-driven but still above RBA target

BNY’s Geoff Yu notes that RBA Assistant Governor Sarah Hunter characterised Australia’s latest CPI print as “a touch softer” than anticipated, with the downside surprise in headline inflation “mainly driven by lower fuel prices.” Hunter’s comments underscore that the moderation in price pressures is narrowly focused, rather than signalling a broader disinflation trend, and come against the backdrop of inflation still running above the RBA’s 2–3% target band.

The US Dollar (USD) struggles against major peers following official confirmation from Japan regarding joint currency interventions. Japanese authorities confirmed they carried out coordinated yen-buying operations with the United States, with Bank of Japan data pointing to spending of up to $58.97 billion on Thursday. Tokyo further signaled its readiness to intervene again if necessary, noting that close communication with US counterparts remains ongoing.

Pressure on the Greenback was further compounded by a broader easing of market risk aversion, spurred by potential diplomatic developments between the US and Iran. Sentiments shifted after reports indicated US President Donald Trump paused planned military strikes. In a post on Truth Social, President Trump stated that Iran and neighboring Middle Eastern nations had requested time to finalize a deal, a proposal that would lead to the complete reopening of the Strait of Hormuz and address Iran’s nuclear program.

However, financial markets remain cautious as Iranian officials swiftly contested these claims. Reporting via Iran’s Mehr news agency, officials characterized the assertion that Tehran sought a pause as “nothing but a new lie.” They emphasized that Iranian military forces remain on high alert and fully prepared for any eventuality, keeping geopolitical uncertainty elevated.

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Japan’s Katayama says no comment on whether there was FX intervention on Monday

Japan’s Finance Minister Satsuki Katayama said on Monday that she has no comment on whether there was foreign exchange (FX) intervention today, Reuters reported. 

Earlier Monday, Katayama stated that Japanese authorities conducted coordinated Yen-buying intervention with the United States (US) on Friday, adding that officials will not hesitate to carry out more FX intervention with Washington. 

Meanwhile, US Treasury Secretary Scott Bessent stated that Friday’s coordinated FX moves curbed disorderly Japanese Yen (JPY) swings. Bessent said that the Treasury will stay vigilant and maintain close communication with counterparts at the Ministry of Finance (MoF) and the Bank of Japan (BoJ). 

Key quotes from Japan’s Katayama

Conducted coordinated yen-buying intervention with U.S. on Friday. 

Won’t hesitate to carry out more forex intervention with U.S.

Intervention aimed at tackling recent excessive, disorderly yen moves. 

Japan plans to use Federal Reserve’s foreign and international repo facility in future. 

Japan remains vigilant and in close contact with U.S. Treasury counterparts. 

No comment on forex intervention except Friday. 

Market reaction

The Japanese Yen (JPY) attracts some buyers following the headlines. At the time of writing, the USD/JPY is down 0.62% on the day at 156.35.

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British Pound struggles despite easing risk aversion

  • GBP/USD drops despite a weaker US Dollar as Trump’s paused strikes boosted US-Iran diplomatic hopes.
  • President Trump stated Middle Eastern nations requested extra time to finalize a deal with Iran.
  • The BoE signaled possible rate hikes if US-Iran conflict uncertainties drive up inflation.

GBP/USD holds losses after three days of gains, trading around 1.3470 during the Asian hours on Monday. The currency pair may regain its footing as the US Dollar (USD) struggles under easing risk aversion, driven by hopes of a diplomatic breakthrough between the United States (US) and Iran following reports that US President Donald Trump held off on planned strikes.

In a post on Truth Social, US President Trump stated that Iran and other Middle Eastern nations requested additional time to finalize an agreement, a proposed deal that would lead to the “immediate, complete, and total” reopening of the vital Strait of Hormuz while effectively eliminating Iran’s nuclear threat.

However, high market uncertainty persists as Iranian officials swiftly dismissed the claims. According to Iran’s Mehr news agency, Iranian officials characterized Trump’s assertion that Tehran sought a pause as “nothing but a new lie,” emphasizing that the Iranian armed forces remain on high alert and fully prepared for any eventuality.

The Bank of England (BoE) opted to leave interest rates unchanged last week, though it kept the door open for potential rate hikes due to ongoing uncertainty surrounding the US-Iran conflict. Despite the pause, money markets continue to price in a 25-basis-point rate increase by the end of the year, according to Prime Terminal data.

BoE tone softens as Bailey downplays urgency on next hike

Analysts at Scotiabank characterize the latest BoE decision as signaling “softened hawkishness,” noting that Governor Andrew Bailey “played down the urgency around timing of the next rate hike” even as the MPC delivered a 6–3 vote to hold rates, with three policymakers calling for a “25bpt increase.” This combination of a split vote and more cautious guidance reinforces the impression of a central bank that remains alert to inflation risks but is in no rush to tighten policy aggressively.

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Canadian Dollar drifts lower as falling oil prices counter weak USD amid Iran hopes

  • USD/CAD attracts some buyers, albeit it lacks follow-through amid a combination of diverging forces.
  • A slump in oil prices undermines the Loonie and supports spot prices, though a weaker USD caps gains.
  • The focus shifts to this week’s key macro releases, including key jobs reports from the US and Canada.

The USD/CAD pair kicks off the new week on a positive note, though it lacks bullish conviction and remains confined within Friday’s broader range. Spot prices currently trade around the 1.4030 region, up less than 0.10% for the day amid mixed fundamental cues.

Crude oil prices tumble after US President Donald Trump cancelled a threatened attack on Iran, claiming Mideast allies have reached the parameters of a deal to end the five-month-old war. Adding to this, the OPEC+ members agreed to increase oil production by 188,000 barrels per day in September, exerting additional pressure on the black liquid. This, in turn, undermines the commodity-linked Loonie and acts as a tailwind for the USD/CAD pair, though the prevalent US Dollar (USD) selling bias caps further gains.

1An intraday slump in crude oil prices eases inflation fears and tempers bets for an immediate interest rate hike by the US Federal Reserve (Fed). Furthermore, aggressive follow-through short-covering around the Japanese Yen (JPY) drags the USD Index (DXY), which tracks the Greenback against a basket of currencies, to its lowest level since June 17. This, in turn, warrants some caution for USD/CAD bulls and positioning for any meaningful recovery from sub-1.4000 levels, or a one-and-a-half-month low touched last Thursday.

Market participants now look forward to this week’s important US macroeconomic releases, scheduled at the beginning of a new month, starting with the ISM Manufacturing PMI later today. The focus, however, will be on the crucial monthly employment reports from the US and Canada, due on Friday, which will play a key role in influencing the USD/CAD pair in the near term. Apart from this, further developments surrounding the Middle East crisis might continue to infuse volatility and provide some meaningful impetus.

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Yen Extends Rally as Japan Confirms Intervention

The Japanese yen strengthened toward 155 per dollar on Monday, bringing its gains to about 5% over three sessions, after the Finance Ministry confirmed it carried out coordinated yen-buying operations with the US Treasury last week following the currency’s slide to 40-year lows. Japanese authorities also warned they stand ready to conduct additional coordinated interventions if needed, adding that they remain in close contact with their US counterparts. US Treasury Secretary Scott Bessent also confirmed the joint action to counter disorderly moves in the yen, while President Donald Trump previously said the US joined last week’s coordinated intervention as a show of support for Japan and to help safeguard global economic stability. The yen had fallen to four-decade lows last month amid pressure from elevated energy costs, mounting fiscal concerns, and persistently wide interest rate differentials.

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Australian Dollar Near 7-Week High

The Australian dollar rose above $0.70, approaching a seven-week high, supported by broad weakness in the US dollar and hopes of diplomatic talks in the Middle East. The greenback weakened after Japan confirmed coordinated yen-buying operations with the US Treasury last week, boosting support for the Aussie. Elsewhere, US President Donald Trump said peace talks with Iran will resume after key Middle Eastern allies urged a diplomatic solution and the reopening of the Strait of Hormuz, lifting risk sentiment. In Australia, markets imply next to no chance the Reserve Bank will hike at its next meeting and only a slim possibility of a move in September. However, markets are pricing roughly even odds of a November hike, reflecting the risk that third-quarter inflation data could come in stronger than expected. The central bank has already raised rates three times this year, and the cumulative tightening is increasingly weighing on the housing market, with prices falling 0.7% in July.

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New Zealand Dollar Rises to 2-Month High

The New Zealand dollar rose to around $0.589 on the first trading day of August, reaching a two-month high, as a fresh wave of yen buying weighed broadly on the US dollar, while fresh negotiations in the Middle East lifted risk appetite. The greenback extended its decline after Japan confirmed it had engaged in joint yen-buying intervention with the US on Friday. Meanwhile, President Donald Trump said new talks with Iran would begin on Monday after he canceled a weekend attack against Tehran, raising hopes for progress toward resolving the months-long conflict. Improving domestic sentiment, with New Zealand businesses and consumers becoming more optimistic, also underpinned the kiwi. Traders now await the country’s second-quarter jobs report for further clues on the state of the economy. Currently, markets are almost fully pricing in a quarter-point rate hike by the Reserve Bank of New Zealand in September.