USD slides on hopes of US-Iran war nearing an end

Today’s headlines

What’s happening: The US dollar traded lower this morning following fresh comments from President Donald Trump.

What happened: The US dollar index remained below the 99 mark, following a sharp decline in the previous session, with the prospects of an end to the US-Iran conflict lowering demand for safe-haven assets.

Trump also said he expects oil prices to east, while signalling plans to waive off oil-related sanctions.

Why it matters: Trump said the US military operation in Iran is nearing an end and is running ahead of the initial four- to five-week projected timeframe.

The US President also signalled plans to have the Navy escort oil tankers through the Strait of Hormuz to control the surge in oil prices. Meanwhile, the G-7 finance ministers said they were ready to release oil from strategic reserves, if needed.

Data released on Monday showed median one-year-ahead inflation expectations in the US eased to 3% in February from January’s 3.1%. This marked the lowest level in seven months.

The US dollar had risen sharply as investors rushed to safe-haven assets with growing tensions with Iran and rising crude oil prices, which raised concerns of economic disruption and a rise in inflation.

The US dollar index, which measures the greenback’s performance versus a basket of major peers, fell around 0.4% to 98.79 this morning.

The EUR/USD pair fell around 0.2% to 1.1621, while the GBP/USD forex pair slipped 0.1% to 1.3427. The USD/JPY forex pair edged higher to 157.72.

What to watch: Investors will keep an eye on the ongoing geopolitical tensions between US-Israel and Iran.

Data on ADP employment change (1615 UAE Time) and existing home sales (1800 UAE Time) will be released on Tuesday. US private employment rose by an average of 12,750 jobs a week during the four weeks ending February 7, compared to a 11,500 gain in the previous period. Existing home sales in the US, which dipped by 8.4% in January to record the biggest decline since February 2022, are expected to contract by 0.8% in February.

Investors also await the release of data on CPI, due this Wednesday, and PCE price index, scheduled for Friday. The annual inflation rate in the US, which eased to 2.4% in January from 2.7% in the previous month, is expected to remain at 2.4% in February. Analysts expect the core PCE price index to remain unchanged at 3% in January.

The markets today

Japanese stocks in focus today ahead of PPI data

Context: Japan’s Nikkei 225 gained this morning, recovering losses from the previous session.

Details: Oil prices dipped back below the $100 per barrel level, easing stagflation concerns after US President Donald Trump signalled that the ongoing war against Iran could end soon.

Global stocks had fallen sharply in response to the growing tensions between the US and Iran, and surging oil prices.

Meanwhile, data released from Japan showed that the economy grew at an annualised pace of 1.3% in the fourth quarter, up from the initial reading of 0.2% and topping market estimates of 1.2%. The latest reading also signalled a rebound from the 2.6% decline recorded in the third quarter.

Household spending in Japan declined 1% year-over-year in January following a 2.6% contraction in the previous month. However, the figure came in short of market estimates of a 2.5% gain. Japan’s nominal wages surged 3% year-over-year in January, accelerating from 2.4% in December and topping market estimates of 2.5%.

Japan’s Nikkei 225 jumped 3.17% to trade at 54,399.08 this morning, while the TOPIX surged 2.75% to 3,674.24.

What to watch: Investors will continue monitoring the ongoing US-Iran tensions. Data on PPI (0350 UAE Time) from Japan will be released on Wednesday. Japan’s producer prices, which surged by 2.3% year-over-year in January, easing from 2.4% growth in the previous month, are expected to rise by 2.1% in February.

Other Markets: European indices closed lower on Monday, with the FTSE 100, DAX 40, CAC 40 and STOXX Europe 600 Index down by 0.34%, 0.77%, 0.98% and 0.63%, respectively.

The news shaping the markets

Russia’s President Vladimir Putin said that the country was willing to conditionally provide oil and gas to Europe due to a surge in oil prices following the US-Iran war. The news sent the USD/RUB pair lower in forex trading this morning.

Australia’s NAB business confidence index fell sharply to -1 in February from 4 in the previous month. Business sentiment turning negative for the first time since April 2025 exerted pressure on the AUD/USD forex pair.

UK retail sales climbed 0.7% year-over-year in February. This coming in below market estimates of 2.4% growth sent the GBP/USD pair lower in forex trading this morning.

South Korea’s economy shrank by 0.2% in the fourth quarter, following 1.3% growth in the previous quarter. This being the first quarterly decline since the first quarter of 2025 lent support to the USD/KRW forex pair.

Mexico’s auto exports declined by 4.4% year-over-year to 247,945 units in February following a 2.3% gain in the previous month, which sent the USD/MXN pair higher in forex trading this morning.

What else to watch today

Italy’s PPI (1300 UAE Time), South Africa’s GDP growth rate (1330 UAE Time), Spain’s 3-month Letras auction (1340 UAE Time) and 9-month Letras auction (1340 UAE Time), US NFIB business optimism index (1400 UAE Time), Redbook index (1655 UAE Time) and 3-year Note auction (2100 UAE Time), as well as Germany’s 2-year Schatz auction (1430 UAE Time).