The U.S. dollar stabilized on Monday as fluctuating hopes for a deal to end the Middle East conflict kept investors on edge ahead of a series of major central bank meetings this week. Meanwhile, the Japanese yen hovered near the critical 160 level against the dollar prior to the Bank of Japan's upcoming policy decision.

Cautious Optimism Over Talks

Market sentiment improved slightly following reports that Iran submitted a new proposal to the United States via Pakistani mediators. The proposal aims to reopen the Strait of Hormuz and end the war, while deferring nuclear negotiations.

However, analysts believe the nuclear file remains the primary obstacle, as any agreement that does not significantly alter Irans nuclear program could be politically costly for President Donald Trump domestically.

Dollar and Oil Dynamics

The dollar benefited from safe-haven flows when the war broke out in March, but it surrendered most of those gains this month as peace expectations rose. It has since stabilized as talks stalled.

- Brent crude futures rose 2.6% to $108 per barrel.

- The U.S. Dollar Index (DXY) fell 0.1% to 98.41.

- A key negotiation point remains Iran's demand for the lifting of economic sanctions.

Central Bank Watch: Fed and Beyond

The Federal Reserve is widely expected to keep interest rates unchanged this week. Chris Turner, Head of FX Strategy at ING, noted that the Fed might signal a need to keep rates "higher for longer," which could provide limited support to the dollar.

The Euro and Energy Exposure

The Euro rose from 1.15 toward 1.18 dollars after the early April ceasefire announcement. However, the Eurozone remains more vulnerable to energy price spikes than the U.S. due to its heavy reliance on oil imports. This puts pressure on the European Central Bank (ECB) to maintain a hawkish tone, even as rates are expected to stay on hold for now.

- The Euro edged up 0.1% to $1.1734.

Japans Intervention Risks

The yen rose 0.07% to 159.26 per dollar, remaining close to the 160 threshold that often triggers fears of government intervention.

- The Bank of Japan is expected to keep rates unchanged while signaling a readiness to hike later to combat energy-driven inflation.

- Gregor Hirt, Global CIO at Allianz Global Investors, noted that resuming Japan's rate-hike cycle depends heavily on geopolitical stability and the potential reopening of the Strait of Hormuz in the coming months.