Dollar Strengthens, Markets Cut Fed Hike Bets
The US dollar maintained its gains in early Asian trading on Thursday, as investors sought confirmation of whether a de-escalation of the US-Israel conflict with Iran was truly imminent. The dollar's gains coincided with adjusted interest rate expectations, with markets beginning to reduce the likelihood that the Fed's next move would be a hike.
Against the yen, the dollar was relatively flat at 159.41, holding near its strongest level since 2024. The Australian dollar fell 0.1% to 0.6943, while the New Zealand dollar held steady at 0.5806. The dollar index (DXY) rose 0.5% to 99.641, its biggest daily gain in a week, as geopolitical uncertainty remained high.
Iran's foreign minister said his country was reviewing a US proposal to end the Gulf War but had no intention of engaging in talks to end the escalating conflict. Westpac assessed that the market is currently very headline-driven, with the focus on whether the latest news reflects a genuine de-escalation effort or simply a move toward a new "balance of conflict."
he surge in energy prices following the closure of the Strait of Hormuz prompted markets to reassess inflation projections and increased confidence that the Fed could hold policy longer. Fed funds futures are now pricing in a 70.6% probability the Fed will remain “on hold” at its December meeting, up from 60.2% the day before (CME FedWatch).
In Asia, the dollar held steady against the offshore yuan at 6.9026 after Trump said he would meet Chinese President Xi Jinping on May 14-15 in his first visit to China in eight years, which was previously delayed due to the Iran war. Meanwhile, the euro held steady at 1.1560 after two days of declines, following comments by ECB President Christine Lagarde that left open the possibility of an interest rate hike if the war pushes eurozone inflation persistently higher.
The pound sterling was also relatively steady at 1.3365, trying to avoid a third straight day of declines after data showed UK consumer inflation held at 3.0% in February—unchanged from January but still above target. The market is now awaiting further signals from Iran's diplomatic progress, the direction of energy prices, and changes in global interest rate expectations as key drivers of the dollar.
Source: Newsmaker.id
