Dollar higher after weekly loss

The dollar index was last up 0.184 per cent at 99.195 after last week’s decline of 0.4 per cent

The U.S. dollar was higher on Monday after a small weekly loss as investors digested latest developments in Middle East peace talks after Iran and the U.S. traded blows over the weekend, raising questions about the fragility of diplomatic efforts to end the war.

The dollar index edged lower last week on expectations that a deal between Iran and the U.S. to reopen the Strait of Hormuz was close. The closure of the key oil artery has lifted oil prices and worsened the inflation outlook, leading some observers to expect the central bank would raise rates this year.

The dollar index was last up 0.184 per cent at 99.195 after last week’s decline of 0.4 per cent.

The dollar had rallied at the onset of ​the war, which began on February 28, buoyed by safe-haven demand and the U.S. economy’s relatively limited exposure to energy-driven inflation. However, it has given back some of those ​gains due to uncertainty surrounding the war’s trajectory.

The euro was down 0.26 per cent at $1.1632, while sterling was 0.03 per cent higher at $1.34565.

Should the Strait of Hormuz reopen to traffic and oil prices fall, the dollar would likely weaken in the near term and risk-sensitive currencies, such as the Swedish crown, would outperform, said Tommy von Bromsen, FX strategist at Handelsbanken.

But currency markets are in wait-and-see ​mode after the U.S. said it had over the weekend attacked Iran after “aggressive ​Iranian actions,” including attack on U.S. over international waters.

Iran said on Monday it had targeted the U.S. in response ‌to an ⁠attack on Iran.