The dollar climbed on Monday as the initial round of U.S.-Iran talks buoyed optimism for a peace deal while the pound was higher in choppy trading after British Prime Minister Keir Starmer announced that he would resign.

The U.S. waived sanctions on Iran for 60 days from Monday after the first talks under a budding peace deal, and officials reported calm in Lebanon after fighting that had prompted Iran to declare the Strait of Hormuz closed.

U.S. crude shed 1.84% to $75.19 a barrel and Brent fell to $77.93 per barrel, down 3.29% on the day, as the reported progress on a deal eased supply worries.

The dollar index, which measures the greenback against a basket of currencies, rose 0.16% to 101, with the euro off 0.36% at $1.1427.

European Central Bank President Christine Lagarde said the inflation shock facing the euro zone is too large to ignore but not yet large enough to push up longer-term price bets or generate dangerous second-round price effects.

Pound Recovers as Political Uncertainty Looms

Sterling bounced back from a session low of $1.3175 hit after Labor leader Starmer said he would resign, opening the door for rival Andy Burnham to possibly become the country’s seventh prime minister in 10 years as soon as next month.

“My sense would be something like the bond market vigilantes … are probably a guardrail against a shift too far to the left by the next UK government,” Marc Chandler, chief market strategist at Bannockburn Capital Markets in New York, said.

“There’ll be a contest, but the bond market will really be what people will be watching to see the credibility of the new government.”

Sterling was last up 0.08% to $1.3243.

Yen Near 40-Year Low

Against the Japanese yen, the dollar strengthened 0.14% to 161.50 after hitting 161.92, just shy of a two-year low reached last week. A break above 161.96 would take the yen to its weakest level since 1986.

The Japanese currency saw several sharp moves in which the yen briefly strengthened against the greenback.

After the Bank of Japan raised rates last week in a widely expected move, Japanese Finance Minister Satsuki Katayama said on Monday that authorities were prepared to respond appropriately to currency moves at any time.

The yen has erased gains made after a round of interventions from April 30, with a shift in focus by the Federal Reserve leading traders to boost expectations for rate increases this year, which has favored the dollar.

“People should be on guard for BOJ intervention and maybe even supportive comments from the U.S.,” Chandler said.

Both Deutsche Bank and BofA Global Research adjusted their forecasts for the Fed on Monday to include rate hikes in September, with BofA expecting the central bank to raise rates by 25 basis points each in September, October and December.

Markets are now pricing in a 38.5% chance for a rate hike of at least 25 basis points at the Fed’s July meeting, up from the 6.4% a week ago, according to CME FedWatch.

(Reporting by Chuck Mikolajczak; additional reporting by Amanda Cooper and Dhara Ranasinghe in London, Ankur Banerjee in Singapore; Editing by Aidan Lewis, William Maclean, David Goodman, Andrew Heavens and Deepa Babington)