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The dollar is on course to register four straight daily higher highs as Iran looks unable to put forward a coherent negotiating position.
A rising dollar pushes the GBP/USD exchange rate back to support at 1.3480 and analysts we follow think there's further weakness ahead owing to limited visibility on the Middle East conflict.
There's been no clear indication that talks will progress to that promised peace deal and reopening of blocked shipping lanes, creating enough anxiety to call time on recent market optimism. For currencies, that means a stronger dollar.
Trump midweek extended a recent ceasefire deadline, and reports say he is not putting too much pressure on Iran because of divisions in Tehran.
Axios reports Trump's negotiators believe a deal to end the war and address what's left of Iran's nuclear programme is still achievable, but that they also worry they may not have anyone in Tehran empowered to say yes.
The report says Iran's Supreme Leader, Mojtaba Khamenei, is barely communicating, IRGC generals are now in control of the country and Iran's civilian negotiators are openly at odds over strategy.
We saw that there is an absolute fracture inside Iran between the negotiators and the military, with neither side having access to the supreme leader, who is not responsive," a U.S. official said.
"The situation is likely to remain highly volatile in the short term, and reaching a lasting agreement between all of the parties involved appears complex," says Jimmy Jean, an economist at Desjardins Bank. "Our baseline scenario now calls for a more persistent disruption in oil markets."
According to the Axios report, the fracture in Iran's upper leadership echelons is partly a consequence of Israel's March assassination of Ali Larijani, the previous secretary of Iran's Supreme National Security Council.
It is said Larijani had the authority and political weight to hold Iran's decision-making together.
Iran's inability to negotiate is certainly a risk that was not widely considered by market analysts we followed at any point of the duration of the conflict. It's something to add to the worry list.
"Risk sentiment remains pressured as Brent crude continues to advance from Friday’s low," says Jeremy Stretch, Chief International Strategist at CIBC Capital Markets. "The lack of coherence on the Iranian side is a cause of US concern; that the IRGC and the civilian government do not appear to be aligned as regards their strategic aims remains a source of obvious contention."
With limited progress on the geopolitical front, the dollar pares recent losses, translating into a pound-dollar retreat to 1.3480 support.
A break below here becomes possible in a vacuum of progress in the coming days.
"We expect that risk premia can continue to build into the weekend given the lack of clarity over the next round of talks or how long the ceasefire will last," says Stretch.
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