The U.S. dollar was steady on Monday, as hopes for a Middle East peace deal fluctuated, keeping investors on edge ahead of a series of central bank meetings this week.

Meanwhile, the Japanese yen remained close to the critical 160 level against the dollar, ahead of the Bank of Japan's anticipated monetary policy decision.

Cautious optimism regarding the talks

Morale improved slightly after a report that Iran had made a new proposal to the United States through intermediaries in Pakistan to reopen the Strait of Hormuz and end the war, while postponing nuclear negotiations to a later stage.

Analysts believe that the nuclear issue remains the main obstacle, as any agreement that does not significantly change Iran’s nuclear program could be politically costly for US President Donald Trump domestically.

Tu Lan Nguyen, head of currency and commodity research at Commerzbank, said:
Given the experience of two weeks ago, when similar hopes for reopening the strait emerged and then faded within 24 hours, this wave of optimism is likely to be more cautious this time.

The Strait of Hormuz is a passage for about one-fifth of the world's oil and gas shipments.

Dollar and oil movements

The dollar benefited in March from safe-haven flows as the war broke out, but lost most of those gains this month as expectations of a peace agreement rose, before stabilizing again as talks stalled.

Brent crude futures rose 2.6% to $108 a barrel, while the dollar index fell 0.1% to 98.41.

Analysts pointed out that one of the important issues in the negotiations is Iran's demand to lift economic sanctions.

Awaiting decisions from the Federal Reserve and major banks

The US Federal Reserve is widely expected to keep interest rates unchanged this week.

Chris Turner, head of currency research at ING, said the Fed may signal a need to keep interest rates high for a longer period, which could provide limited support to the dollar.

The euro is under the influence of energy.

The euro rose from $1.15 to around $1.18 after the ceasefire was announced in early April, benefiting from improved sentiment.

But the Eurozone remains more vulnerable to rising energy prices than the United States, given its heavy reliance on oil imports, prompting the European Central Bank to adopt a more hawkish tone, despite expectations that interest rates will remain unchanged at the current meeting.

The euro recorded a slight increase of 0.1% to $1.1734.

Risks of Japanese intervention

The yen rose 0.07% to 159.26 against the dollar, nearing the 160 level that raises concerns about intervention by Japanese authorities to support the currency.

The Bank of Japan is expected to keep interest rates unchanged, while indicating its readiness to raise them later to counter inflationary pressures resulting from rising energy prices.

Gregor Hirt, global investment director at Allianz Global Investors, noted that the resumption of the interest rate hike cycle in Japan depends heavily on the stability of geopolitical conditions, especially if the Strait of Hormuz is reopened in the coming months.