Dollar firms slightly as safe haven demand boosted by U.S.-Iran diplomatic setback

The U.S. dollar firmed slightly on Monday, boosted by safe have demand following a diplomatic setback between Washington and Tehran. Traders were also cautious ahead of key U.S. inflation data this week that could show a big impact of surging oil prices.

At 15:43 ET (19:43 GMT), the U.S. dollar index, which tracks the greenback against a basket of six major peers, was up 0.1% to 97.96.

Trump rejects Iran’s response, says ceasefire ’unbelievably weak’ 

Over the weekend, Iran’s state media said Tehran had formally responded to a U.S. plan to end their more than two-month old conflict. The response called for an end to fighting on all fronts, recognition of Iran’s sovereignty over the critical Strait of Hormuz, and U.S. compensation for war damages.

President Donald Trump weighed in on Iran’s response within hours, writing on social media: "I don’t like it — TOTALLY UNACCEPTABLE."

"The plan is they cannot have a nuclear weapon, and they didn’t say that," Trump told reporters on Monday, adding that the proposal was "stupid."

Trump claimed that two days ago Iran had agreed to end nuclear enrichment and had requested the U.S. to take out its nuclear material, which Trump refers to as "nuclear dust." But the president said Iran changed its mind and did not include anything about nuclear activities in the proposal it sent.

Trump also said that an ongoing ceasefire between the U.S. and Iran was "unbelievably weak" and was on "massive life support."

Aside from Iran’s nuclear program, another major sticking point between the U.S. and Iran revolves around control over the Strait of Hormuz. The vital waterway for a fifth of the world’s oil and gas has been effectively shuttered since the end of February, leading to the biggest supply disruption in history.

Trump told Fox News that he was considering restarting a U.S. effort called "Project Freedom" to safely help commercial ships transit the strait. The chokepoint has been blockaded by both the U.S. and Iran.

"Our view has been that the U.S. administration has probably decided that the economic blockade of Iran (the ’economic war’) is currently more effective than resuming bombing runs, and also more advantageous for the U.S. administration, both domestically and internationally," Thierry Wizman, global FX & rates strategist at Macquarie, said.

"And as long as crude oil prices stay high - because the U.S.’s blockade and Iran’s threat to tanker traffic in the Gulf - the USD will stay strong. The toll that high oil prices will take on the rest of the world’s economies will be much more pernicious than the toll taken by the US. The USD will only have a chance to depreciate again when oil prices normalize, presumably on a peace deal that sticks," Wizman added.