The dollar firmed on Monday after peace talks between the US and Iran broke down and as the US Navy prepared a blockade of Iranian ports, while the Hungarian forint jumped after the centre-right Tisza party defeated Viktor Orban in a landslide election victory.
The euro was down 0.2 per cent at $1.1698, while the British pound fell 0.2 per cent to $1.3439, although both were above earlier lows. The risk-sensitive Australian dollar was 0.3 per cent lower at $0.7052 and the New Zealand dollar was off 0.1 per cent at $0.5834.
President Donald Trump on Sunday said the US Navy would start blockading the Strait of Hormuz after talks with Iran failed to lead to a deal to end the war, jeopardising a fragile two-week ceasefire. The US Central Command said US forces would begin implementing the blockade of all maritime traffic entering and exiting Iranian ports from 10 a.m. ET (1400 GMT) on Monday.
"What we're seeing this morning is positive for the dollar, but we're not seeing the large movements that we saw earlier in the war," said Tommy von Brömsen, foreign exchange strategist at Handelsbanken, adding that the US inability to conduct sound policy could start to push investors away from the US currency.
The war in the Middle East has pushed energy prices sharply higher, stoking worries about higher inflation and lower global growth. Brent crude futures are up about 7 per cent on Monday to around $102 per barrel.
The dollar has tended to benefit when tensions between Iran and the US have flared, given its status as a safe haven and the limited exposure of the US to imported energy-price inflation.
The Norwegian crown and Canadian dollar are relatively outperforming, with both currencies sensitive to movements in energy prices.
"Beneath the surface, today's price action looks less risk-led and more driven by relative terms of trade shifts," said Goldman Sachs analyst Teresa Alves.
Meanwhile, Friday's data from the Commodity Futures Trading Commission showed that speculators raised their net long positions in the US dollar in the latest week. Positioning in the euro flipped to a net short for the first time since March last year, the CFTC data showed.
HUNGARIAN FORINT RISES
The Hungarian forint surged nL8N40W056 after veteran nationalist leader Viktor Orban lost power to Peter Magyar's Tisza party in Sunday's national election after 16 years in office.
The currency rallied as much as 2.4 per cent to 311.4 against the dollar - its strongest level since February 2022 - and jumped 2 per cent against the euro.
"The constitutional majority allows for a smooth transfer of power for the opposition and a faster path to unlocking EU funds, which are the main focus of investors, giving Hungarian assets another reason to extend their rally," said ING FX strategist Frantisek Taborsky.
YEN WEAKENS
Against the yen, the U.S. dollar was up 0.3 per cent at 159.69 as yields on Japan's benchmark 10-year government bonds jumped 5.5 basis points to 2.49 per cent , the highest in almost three decades.
Bank of Japan nL1N40W05N Governor Kazuo Ueda said on Monday that economic and price developments were moving roughly in line with the bank's forecasts, but called for vigilance over the impact of the conflict in the Middle East.
Analysts said Ueda's speech could be one of the last opportunities for the BOJ to signal whether it will raise interest rates later this month. Money market traders are pricing in about 7 basis points of tightening at the April 28 meeting, implying an almost 30 per cent chance of a quarter-point hike.
"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.