HONG KONG, May 29 — The dollar was firm against other major currencies today, but on track to end the week lower, after reports the US and Iran reached an agreement to extend the ceasefire in the Middle East and lift restrictions on shipping through the Strait of Hormuz.
The deal, still pending Trump’s approval, would extend the truce for another 60 days and allow traffic to flow through the strategic waterway while negotiators tackle difficult issues such as Iran’s nuclear program, four sources told Reuters.
Oil futures fell more than 1 per cent today and were on track for their steepest weekly decline since early April. The dollar was heading toward ending the week 0.3 per cent lower, snapping two weeks of gains.
“Geopolitical risk premia may continue to unwind in the near term,” said Lloyd Chan, senior currency analyst at MUFG Global Markets Research.
Although renewed tensions are likely to keep markets sensitive in the near term, the balance of probabilities still points toward de-escalation, with both the US and Iran appearing incentivised to pursue a diplomatic resolution, he added.
The euro and the pound traded flat at US$1.1642 and US$1.3435, respectively. The Australian dollar was a shade higher at US$0.7165.
The New Zealand dollar rose 0.4 per cent to US$0.5960, near the strongest level in more than two weeks, extending the recent rally after the country’s central bank governor signalled earlier and steeper rate hikes were likely.
The dollar index, which measures the greenback against a basket of currencies, was largely rangebound. It last traded at 99.045 after dipping 0.2 per cent yesterday.
“It might well be that once this crisis in Iran, in the Middle East, is behind us, we expect the US dollar to remain weak,” said Massimiliano Castelli, head of strategy in the global sovereign markets team at UBS Asset Management.
The conflict has temporarily paused the dollar weakness due to demand for safe havens, but many investors remain keen to diversify away from US dollar assets, he said.
US inflation increased at its fastest pace in three years in April, driven by higher energy prices due to the Iran war and cementing economists’ views that the Federal Reserve will hold interest rates unchanged well into next year.
The Japanese yen traded at 159.30, pulling away from the psychologically significant 160-per-dollar level that has previously led to interventions by Japanese authorities.
Data today showed annual core inflation in Japan’s capital stayed below the central bank’s 2 per cent target for a fourth straight month in May, while factory output rebounded in April. Analysts said that cemented the case for a Bank of Japan rate hike next month. — Reuters
