By Gregor Stuart Hunter
SINGAPORE, April 13 (Reuters) – The safe-haven dollar advanced on Monday as peace talks between the U.S. and Iran broke down nL1N40U07M and the American Navy prepared a blockade of Iranian ports, though the greenback pared gains as the trading session continued.
The euro was down 0.3% at $1.1689, while the British pound fell 0.4% to $1.3403; both rallied off earlier lows. The risk-sensitive Australian dollar was 0.5% lower at $0.7037 and the New Zealand dollar was off 0.3% at $0.5824.
President Donald Trump on Sunday said the U.S. Navy would start blockading the Strait of Hormuz after talks with Iran failed to reach a deal to end the war, jeopardizing a fragile two-week ceasefire. The U.S. Central Command said U.S. forces would begin implementing the blockade of all maritime traffic entering and exiting Iranian ports from 10 a.m. ET (1400 GMT) on Monday.
“We did expect negotiations to be difficult and lengthy but assumed that this weekend’s talks would be the beginning of a process which would, at least, result in a degree of situational stabilisation,” analysts from BNP Paribas wrote in a report. “This view was clearly misplaced.”
BNP added that “we would not be surprised if the negotiations are restarted relatively quickly given the current ceasefire timeline.”
Meanwhile, the Hungarian forint surged after veteran nationalist leader Viktor Orban lost power nL1N40V01B to the upstart centre-right Tisza party in Sunday’s national election after 16 years in office.
The currency rallied as much as 1.7% to 314.55 against the dollar – its strongest level since January – and jumped 2% against the euro
“Hungarian assets have reacted positively to the news in early trading, in part because the outcome implies that EU fund inflows into Hungary will be fully released relatively quickly,” analysts from Goldman Sachs wrote in a report. “EU funds from the current 2021-27 budget account for roughly 3% of GDP per year, with nearly half currently frozen.”
The U.S. dollar index, which measures the greenback’s strength against a basket of six currencies, slipped 0.1% to 98.999, holding near its highest level since April 7.
Against the yen, the U.S. dollar was up 0.3% at 159.68 as yields nL4N40V03Y on Japan’s benchmark 10-year government bonds jumped 5.5 basis points to 2.49%, the highest level in almost three decades.
Traders are awaiting a speech from Bank of Japan Governor Kazuo Ueda later on Monday which may provide clues about how the central bank will react to the energy shock caused by the Iran war, as the prospect dims of a rate hike nL4N40T1P9 at its next meeting ending on April 28.
“The risk of policy errors is relatively high in Japan and Europe, which means that money will tend to return to USD assets for lack of better alternatives,” analysts from Nomura wrote in a note.
(Reporting by Gregor Stuart Hunter; Editing by Sonali Paul, Kevin Buckland and Thomas Derpinghaus)
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