Iran Responds to US Proposal with Conditions, Dollar Trims Gains
The US dollar pared its gains on Thursday (March 26) after Iran stated it had responded to the United States' ceasefire plan with several conditions, including guarantees that attacks would not resume. Oil prices also pared gains, reflecting a market reassessment of the conflict's trajectory and its implications for inflation and interest rate policy.
The Bloomberg Dollar Spot Index traded up around 0.1% after rising as much as 0.3% earlier in the session. Iran's semi-official Tasnim news agency reported that Tehran responded to the US ceasefire proposal through intermediaries overnight and is now awaiting a response.
Data-wise, US jobless claims provided mixed signals. Continuing claims (a proxy for the number of beneficiaries) fell 32,000 to 1.819 million in the week ending March 14, the lowest level since May 2024, according to Labor Department data released Thursday. Initial claims rose 5,000 to 210,000 last week.
In a strategy note, Daniel Tobon, Osamu Takashima, and Brian Levine assessed that a stagflationary macro environment could dampen global growth expectations and risk sentiment, which in turn would support the dollar in the coming months. However, they predicted that the dollar's strength could fade towards the end of the year as markets potentially engage in a more dovish repricing, given the Fed's dual mandate compared to other central banks that focus more on inflation.
They also maintained their bearish outlook for EUR/USD, even bringing forward their 0–3-month forecast to 1.11, and predicted that high-beta currencies that do not benefit from terms-of-trade shocks—particularly the NZD and SEK—would underperform in that period. EUR/USD fell 0.1% to 1.1551, while ECB Vice President Luis de Guindos said the ECB was "closely monitoring" the economic effects of the Iran war and remained committed to price stability.
In Europe, the Norwegian krone was the best performer among G-10 currencies. USD/NOK fell 0.5% to 9.6453 after Norges Bank held its deposit rate at 4%, as expected. The central bank also stated that a rate hike would “likely be appropriate,” reversing its previous guidance indicating three cuts by the end of 2028. Nomura believes Norges Bank is likely to keep rates unchanged for the time being, but if Brent prices remain around $100/barrel, they see the possibility of a 25 bps hike in June and again in September.
Elsewhere, AUD/USD fell 0.5% to 0.6913 after RBA official Chris Kent rekindled rate hike bets, reiterating that the RBA board is “very focused on inflation.” USD/JPY was flat at 159.49, while the Bank of Japan’s new inflation indicator, which excludes fresh food, energy, and special factors, rose 2.7% in February.
Newsmaker Keynote: The dollar and oil both held steady after Iran invoked ceasefire terms, adding another layer of uncertainty to the market. With the narrative of energy inflation and the risk of stagflation still dominant, the direction of the dollar—and commodity currencies like the Norwegian Krone—will remain heavily influenced by geopolitical headlines and shifts in interest rate expectations.
Source: Newsmaker.id
