Dollar steady as traders assess stuttering US-Iran talks

The U.S. dollar was steady on Monday as wavering hopes of a deal ​to end the Middle East war left investors on edge, keeping the Japanese yen pinned just beneath the crucial 160 level ahead of the Bank of Japan's ‌policy decision later in the week, Reuters reported.

U.S. President Donald Trump scrapped a visit to Islamabad by his envoys over the weekend, saying Iran could reach out if it wanted to negotiate an end to the two-month war, leaving the pivotal Strait of Hormuz effectively closed.

But sentiment got a lift after Axios reported, citing sources, that Iran gave the U.S. a new proposal through Pakistani mediators on reopening ​the waterway and the ending of the war, with nuclear negotiations postponed for a later stage.

The euro cut earlier losses to trade flat at $1.1724, while sterling bought $1.3536, ​also pulling back a bit. The dollar index , which measures the U.S. currency against six major peers, was at 98.491.

The dollar ⁠benefited in March from safe-haven flows as the war erupted but shed most of those gains on hopes of a peace deal this month. It has steadied in ​recent days after U.S.–Iran talks stalled.

"I have been surprised that the markets are so confident, perhaps even blase, about progress in talks and the prospect of a peace ​deal," said Kyle Rodda, senior financial analyst at Capital.com, noting the markets are priced for peace.

The peace might not hold and if it doesn't the markets will have to re-price quite violently."

Although a ceasefire has paused full-scale fighting in the conflict, which began with U.S.-Israeli strikes on Iran on February 28, no agreement has been reached on terms to end the war, keeping investors nervous.

The war ​has sent oil prices surging, fuelled inflation and cast a shadow over the outlook for global growth. The longer the Strait of Hormuz, which normally carries a ​fifth of global oil and gas shipments, remains shut the greater the risk to the global economy, analysts say.

Brent crude futures were up 1% at $106.7 a barrel and U.S. West Texas Intermediate at $95.53 ‌a barrel, ⁠up 1.2% on Monday.

"While a bout of mild stagflation is baked in, the clock is now ticking on whether this turns into a more severe bout like that seen in the 1970s," said Shane Oliver, chief economist and head of investment strategy at AMP in Sydney.