Forex Today: Mood improves as US and Iran renew push for diplomatic solution

Here is what you need to know on Monday, August 3:

Market mood improves at the beginning of the new week as the United States (US) and Iran revive efforts for a diplomatic solution to the conflict. In the second half of the day, the Institute for Supply Management's (ISM) Manufacturing Purchasing Managers' Index (PMI) data for July will be featured in the US economic calendar.

US President Donald Trump announced over the weekend that he held off a planned "massive attack" and said a day later that negotiations with Iran will resume on Monday. Iranian President Masoud Pezeshkian urged the US to “remain committed” to the Memorandum of Understanding (MoU) signed in June.

Crude Oil prices opened with a huge bearish gap on this development and the barrel of West Texas Intermediate was last seen trading at around $78, losing more than 8% on the day. Reflecting the upbeat market mood, the US Dollar (USD) Index stays below 100.00 after losing more than 1.5% in the previous week and US stock index futures are up between 0.5% and 0.8% on the day.

Brent retreats as US-Iran talks resume after aborted strike

Analysts at Danske Bank highlight a sharp pullback in Brent following signs of de-escalation in the US-Iran confrontation. They note that in the context of the US-Iran war, “Trump confirmed on Sunday that negotiations with Iran would resume on Monday after calling off what he described as the ‘biggest attack since World War II’ at the request of Gulf allies.” The US President “declined to set a deadline or disclose the location and participants,” but the prospect of renewed talks has eased immediate geopolitical risk.

According to Danske Bank, “oil prices fell sharply on signs of de-escalation, with Brent crude trading just below USD84/bbl this morning after closing around USD90/bbl on Friday.”

Meanwhile, recent comments from Federal Reserve (Fed) officials failed to support the USD.

Dallas Fed President Lorie Logan delivered a distinctly more hawkish message on Friday, with an FXS Speechtracker score of 8.7/10, notably above the 6.7/10 historical average and signaling a stronger tightening bias relative to the established baseline. The emphasis that “risks to inflation are to the upside,” that monetary policy is “not restraining” the economy, and that inflation is “not on course” to 2%—combined with a stated preference for a quarter-point rate increase—underscored concern that without additional policy restraint, inflation will remain above target and may ultimately require sharper action.

Following the previous week's sharp decline, USD/JPY came under heavy bearish pressure in the Asian session on Monday and touched its lowest level since early May below 155.50. The pair staged a rebound afterward and erased a large portion of its losses. At the time of press, USD/JPY was trading near 156.80, losing about 0.4% on the day.

Japan's Finance Minister Satsuki Katayama said on Monday that she has no comment on whether there was foreign exchange (FX) intervention today, Reuters reported.

Earlier in the day, Katayama stated that Japanese authorities conducted coordinated Yen-buying intervention with the US on Friday, adding that officials will not hesitate to carry out more FX intervention with Washington.

EUR/USD struggles to preserve its bullish momentum after rising in the Asian session and trades virtually unchanged at around 1.1520 in the European morning on Monday.

GBP/USD corrects lower following a three-day rally and trades slightly above 1.3450.

Gold finds it difficult to set a near-term direction and extends its sideways grind above $4,000 on Monday.