The dollar stabilized on Monday while the Japanese yen approached the critical level of 160 per dollar, as anxious investors assessed escalating war developments with Iran and focused on the final deadline set by US President Donald Trump to reopen the Strait of Hormuz.

In a sharp social media post on Easter Sunday, Trump threatened to target power plants and bridges in Iran on Tuesday if the strategic maritime passage is not reopened, setting a precise deadline of 8:00 PM ET.

With most markets in Asia and Europe closed for holidays on Monday, liquidity is expected to be thin while investors focus on the potential for a ceasefire following media reports of a last-ditch effort by negotiators to achieve a breakthrough.

Charu Chanana, head of investment strategy at Saxo Bank in Singapore, said the new deadline announced by Trump carries negative implications for markets, not because investors believe war will break out immediately if the strait is not opened, but because every new ultimatum makes the disruption appear more long-term and impactful on the macroeconomy.

Currency movements

The euro stood at approximately $1.1523, while the British pound was recorded at around $1.3211.

The dollar index, which measures the performance of the US currency against a basket of six major currencies, eased slightly to 100.12.

The Australian dollar rose 0.3% to $0.69045, fluctuating near its two-month low recorded last week.

Conflicting messages from Washington

In contradictory messages that confused supporters, opponents, and financial markets alike, Trump said in a Fox News interview on Sunday that Iran is negotiating and that a deal could happen by Monday.

Axios also reported that the United States, Iran, and regional mediators are discussing terms for a potential 45-day ceasefire that could later lead to a permanent end to the war.

Global markets have been in turmoil since the outbreak of the war between the United States and Israel against Iran in late February, with Tehran effectively closing the Strait of Hormuz, a vital maritime corridor through which approximately one-fifth of the world's oil and liquefied natural gas supplies pass.

Prashant Newnaha, senior rates strategist at TD Securities, said that if the strait is fully reopened near Trumps Tuesday deadline, oil prices would fall sharply and high-risk assets would rally strongly.

However, he added that if the United States escalates the conflict, global markets are expected to sharply reprice assets, explaining that investors are awaiting what appears to be a binary event.

Inflation and stagflation fears

The closure of the strait has pushed oil prices well above $100 per barrel, sparking fears of rising inflation and confusing interest rate expectations worldwide.

Concerns over the conflict's impact on economic growth have also rattled markets, with growing talk of stagflation risks.

In this context, traders no longer expect any move by the Federal Reserve before the second half of 2027, compared to expectations at the beginning of the year that indicated two rate cuts in 2026.

Data released last week showed that the US labor market remained relatively stable in March, but economists warned that a prolonged war in the Middle East could pose a downside risk to the economy.

Japanese yen under watch

The Japanese yen stabilized at 159.55 per dollar, near its 21-month low recorded last week, as traders monitor the possibility of Japanese authorities intervening to support the currency following strong warnings from officials in recent days.

Japanese Finance Minister Satsuki Katayama warned currency traders on Friday, confirming that the government is ready to act against speculative moves in the exchange markets as volatility has risen significantly.

However, many doubt the ability of any potential intervention to change the trend at a time when geopolitical turmoil in the Middle East is driving strong and sustained demand for the dollar as a safe haven.

The yen has declined by about 1.5% since the start of the war, remaining close to the 160 level against the dollar.

Recent data also showed that speculators increased their bearish bets on the yen, with short positions reaching approximately $5.7 billion, the highest level since July 2024 when Japan last intervened in the foreign exchange market.