Dollar Reversal, Trump Comments Ease War Fears
The US dollar weakened after earlier strengthening after President Donald Trump postponed a planned attack on Iran's energy infrastructure and said there were "very good" talks regarding ending hostilities. The statement eased some market concerns about the escalation of the conflict and dampened demand for defensive assets.
The Bloomberg Dollar Spot Index rose about 0.3% earlier in the session. The gain came after CFTC data released Friday showed speculative investors turning positive on the dollar for the first time this year. However, the market reversed course after Trump's social media posts.
Trump had previously given Iran an ultimatum to reopen the Strait of Hormuz or face attacks on its power plants. Tehran responded by declaring it would close Hormuz "completely." The tensions briefly boosted the dollar, but Trump later tweeted that there were "very good and productive talks" between the US and Iran—triggering a shift in sentiment toward limited risk-on sentiment and causing the dollar to lose momentum.
In European markets, EUR/USD rose about 0.4% to 1.1618. ECB Vice President Luis de Guindos stated that the ECB is prepared for the impact of the Iran war on prices. Meanwhile, the ECB's wage indicator projects annual wage growth of around 2.5% in the third quarter and 2.6% in the fourth quarter—stronger than projections for the first half of this year, a factor influencing policy expectations.
GBP/USD also rebounded from a daily low of 1.3257 and briefly strengthened by around 0.7% to 1.3433. Previously, the market had even priced in a Bank of England policy tightening of up to 1% through 2026 for the first time—demonstrating how sensitive interest rate expectations are to energy and inflation shocks.
In Asia, USD/JPY briefly rose around 0.3% to 159.66, but then reversed and fell around 0.6% to 158.26. This movement occurred after Japan's Upper House approved the appointment of two known reflationary academics—chosen by Prime Minister Sanae Takaichi—to the Bank of Japan's policy board, which the market interpreted as a signal that policy could become more pro-inflationary or more tolerant of inflation over the coming period.
Newsmaker's bottom line: the dollar lost steam as markets responded to Trump's de-escalation signals. However, the USD's direction remains fragile and highly headline-driven—as long as the Hormuz issue and the risk of an energy attack remain unabated, the dollar's movement could quickly reverse based on the latest developments.
Source: newsmaker.id
