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The dollar steadied in Asian trading on Tuesday after pulling back from Monday highs, as financial markets tried to find their footing following Donald Trump’s suggestion that the US-Israeli war on Iran could be drawing to a close — a claim Iran’s Revolutionary Guards promptly dismissed as “nonsense.”
The greenback traded at 157.73 yen and $1.1632 per euro, retreating from the peaks it hit on Monday when investors piled into the currency as a safe haven amid fears that a prolonged conflict could choke off energy supplies through the Strait of Hormuz and deliver a severe shock to the global economy.
Brent crude futures were changing hands at around $93 a barrel — still well above pre-war levels but a notable retreat from the near-$120 highs reached on Monday, when the market’s anxiety was at its most acute.
The partial pullback tracked Trump’s comments that the conflict might end sooner than expected, though traders remained wary of reading too much into the statement.
Iran’s dismissal of those remarks added to the uncertainty. With the Revolutionary Guards calling Trump’s assessment groundless, analysts cautioned that markets may be pricing in an optimism that the situation on the ground does not yet support.
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“Our sense is that we haven’t seen the end of the volatility,” said Rodrigo Catril, senior currency strategist at National Australia Bank in Sydney. “There’s still the potential for events to trigger bouts of risk aversion.” Catril said it was unclear whether Tehran would have any interest in de-escalation regardless of what Washington signalled, adding that declaring an end to hostilities was unlikely to be as straightforward as it might appear.
Risk-sensitive currencies remained under pressure. The Australian dollar slipped 0.2 percent to $0.7063 while the New Zealand dollar fell 0.4 percent to $0.5912. Sterling, which had dipped sharply on Monday, recovered to hold at $1.3434.
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The broader concern weighing on markets goes beyond the immediate price of crude. Investors have grown increasingly focused on the secondary effects of sustained high energy costs — their capacity to act as a drag on consumption and business activity while simultaneously pushing central banks away from the rate-cutting cycles many had anticipated for this year.
That combination, growth pressure alongside inflation risk, leaves policymakers with limited room to respond.
Deutsche Bank strategist Henry Allen laid out the conditions that could tip markets into a more severe selloff: oil prices staying elevated for a prolonged period, a meaningful shift in central bank guidance, and concrete evidence that economic activity was deteriorating. “How close are we to meeting those thresholds? Much closer than a week ago,” Allen wrote in a note published Monday.
He added, however, that on several measures the situation had not yet crossed into territory that would warrant the kind of equity market declines seen in 2022, when Russia’s invasion of Ukraine triggered an earlier energy shock.
