Dollar is under broad selling pressure today, giving back its war premium as markets pivot back to diplomacy. Yesterday’s pessimism is already being unwound, with traders reassessing the outcome of the US-Iran talks in Islamabad. Rather than pricing a breakdown, markets are now positioning for continuation of negotiations.
The initial risk-off reaction was driven by the perceived failure of the talks and the subsequent US naval blockade targeting Iranian-linked shipping. That combination briefly pushed markets toward a defensive stance. But the narrative has now shifted.
US President Donald Trump signaled that diplomatic channels remain open, noting that appropriate people had reached out and that Tehran is still interested in a deal. This has reframed the weekend outcome as a pause rather than a collapse.
Reports that the two sides were “80% there” before hitting a wall have further reinforced this shift in sentiment. For markets, that figure provides a concrete basis to believe that a second round of talks is not only possible, but likely. The remaining gap—primarily around nuclear commitments—is seen as political rather than structural.
White House spokeswoman Olivia Wales clarified that while the “red lines” (no nuclear weapons) haven’t moved, “engagement continues toward an agreement.” This confirmed that the departure of J.D. Vance and the Iranian delegation from Islamabad was not a “walk out,” but a “recess” to consult with their respective leadership.
Markets are pricing progress again—not a breakdown. This shift is visible across assets. Oil has stabilized rather than spiking and dipped back to around $100, equities are holding up, and Dollar is weakening as safe-haven demand fades. The war premium that drove yesterday’s moves is now being unwound.
As long as diplomacy remains alive—even if incomplete—the bias is toward further unwinding of the war premium. Markets are not waiting for a deal; they are pricing the path toward one. Until that path is clearly broken, Dollar is likely to remain under pressure.
In the currency markets, Dollar is now the worst performer of the week so far, followed by Yen, and then Aussie. Swiss Franc is the best, followed by Kiwi, and then Sterling. Euro and Loonie are trading in the middle of the pack.
In Asia, at the time of writing, Nikkei is up 2.30%. Hong Kong HSI is up 0.45%. China Shanghai SSE is up 0.43%. Singapore Strait Times is up 0.55%. Japan 10-year JGB yield is down -0.046 at 2.428. Overnight, DOW rose 0.63%. S&P 500 rose 1.02%. NASDAQ rose 1.23%. 10-year yield fell -0.020 to 4.297.
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GBP/USD Daily Outlook
Daily Pivots: (S1) 1.3422; (P) 1.3466; (R1) 1.3551; More…
GBP/USD’s rebound from 1.3158 resumed after brief consolidations. Intraday bias is back on the upside for 61.8% retracement of 1.3867 to 1.3158 at 1.3596. Firm break there will bring retest of 1.3867 high. For now, further rally will remain in favor as long as 1.3379 support holds, in case of retreat.
In the bigger picture, current development suggests that price actions from 1.3867 are merely a corrective pattern within the broader up trend from 1.0351 (2022 low). With 1.3008 support intact, medium term bullishness is maintained and break of 1.3867 is back in favor for a later stage, towards 1.4248 key resistance (2021 high).
