Dollar Weakens Ahead of US–Iran Talks in Islamabad
The US dollar came under pressure ahead of scheduled negotiations between the United States and Iran in Islamabad. Market participants closely watch the outcome of the talks for signals that could shape the price direction into next week.
The US Dollar Index (DXY) fell to 98.60 at the opening of the New York session on Friday (April 10). Investor demand for the greenback softened amid plans for high-level dialogue between Washington and Tehran set to take place in Islamabad, Pakistan. In addition to geopolitical developments, softer-than-expected US inflation data also weighed on the dollar by dampening expectations of a more aggressive monetary policy stance from the Federal Reserve.
The situation in the Strait of Hormuz remains fragile. According to a Reuters report, only one oil tanker and five dry bulk cargo vessels successfully transited the vital shipping route within 24 hours after President Donald Trump announced a ceasefire with Iran, highlighting the limited recovery in maritime activity following the recent tensions.
Despite the constrained situation on the ground, both sides are proceeding with the diplomatic agenda scheduled to begin on Saturday. The US delegation will be led by Vice President JD Vance, accompanied by special envoy Steve Witkoff and adviser Jared Kushner. Iran, meanwhile, is dispatching Foreign Minister Abbas Araghchi alongside Parliament Speaker Mohammad Bagher Ghalibaf and senior representatives of the Islamic Revolutionary Guard Corps (IRGC).
Differences in views still overshadow the negotiations, especially regarding the Lebanon issue. Nevertheless, optimism about the possibility of reaching a peace agreement has reduced the appeal of the US Dollar as a safe haven asset.
Jason Wong, Senior Market Strategist at BNZ in Wellington, noted that the dollar's recent weakness reflects easing geopolitical risk. He observed that investors had previously accumulated dollar positions during the peak of the conflict but are now unwinding those holdings as tensions subside. However, Wong cautioned that market sentiment could shift rapidly if the negotiations fail to produce meaningful progress or if disruptions in the Strait of Hormuz persist.
On the economic front, US inflation has not been able to provide a boost for the dollar. Annual inflation in March 2026 was recorded at 3.3%, up from 2.4% previously, but still below the projection of 3.4%. Core inflation also only slightly increased to 2.6%, lower than the expectation of 2.7%. The figures suggest the Federal Reserve is unlikely to rush into adjusting interest rates in the near term.