The US dollar traded steady on Monday after US President Donald Trump rejected Irans response to the American peace proposal, pushing oil prices higher and reviving concerns that the Middle East conflict could continue for a longer period.

The US dollar index, which measures the performance of the US currency against a basket of six major currencies, was little changed at 97.995.

Meanwhile, oil prices surged, with Brent crude futures rising 3.6% to $104.94 per barrel after Trump rejected Irans response to the US peace proposal on Sunday, increasing fears that the war, now in its tenth week, could drag on further.

Despite that, markets are still betting on the possibility of a settlement to the conflict, according to Kenneth Broux, head of corporate research for FX and rates at Societe Generale.

Broux said: I think the reason behind this optimism is Chinas involvement, adding that the upcoming US-China summit later this week is the key event for markets given both countries influence in the Middle East.

Markets Await Trump-Xi Summit

Trump and Chinese President Xi Jinping are expected to discuss Iran, Taiwan, artificial intelligence, nuclear weapons, and critical minerals, according to US officials.

Markets also remain focused on inflation concerns and slowing economic growth caused by higher oil prices, in addition to potential central bank responses, Broux added.

This week, investors are awaiting US April inflation data following Fridays US jobs report, which showed the economy added 115,000 jobs during April, nearly double market expectations.

Those figures strengthened expectations that the Federal Reserve will keep interest rates unchanged for some time.

The Federal Reserve kept interest rates steady last month as expected, though the decision revealed the deepest internal division within the central bank in decades after three officials opposed signaling the possibility of future rate cuts.

Alex Loo, macro strategist at TD Securities in Singapore, said factors that could pressure the dollar have become less clear following hawkish comments from some Fed officials, strong US economic data, and continued deadlock in the Middle East.

Chinese Yuan Hits Strongest Level in More Than Three Years

In other currency markets, the Chinese yuan touched its strongest level against the US dollar in more than three years during Monday trading before the offshore yuan stabilized at 6.7928 per dollar.

Data released earlier Monday showed Chinas producer prices rose more than expected in April, reaching the highest levels in 45 months amid rising global energy costs.

That followed weekend data showing Chinese export growth accelerated last month as factories rushed to meet AI-related demand.

The euro slipped 0.1% to $1.1774, while the Japanese yen weakened 0.3% to 157.11 per dollar, and the British pound fell 0.23% to $1.36.

In the UK, markets are closely monitoring the political fallout from recent local election results, which dealt heavy losses to Prime Minister Keir Starmers Labour Party.

Chris Turner, global head of markets at ING, said in a note: Although Labours losses were not as severe as markets feared, they have not ended speculation about a potential leadership challenge or a broader shift by the government toward more left-wing policies.