Dollar Steady, Still Supported by Safe-Haven Demand
The US dollar held firm against major currencies on Thursday (March 27th) as markets began to feel disappointed as prospects for Middle East de-escalation faded, rekindling demand for safe-haven assets.
Risk-off sentiment strengthened as stocks weakened and oil prices rose, while Iran's Foreign Minister said his country was reviewing a US proposal to end the war but had no intention of holding talks.
A slight increase in US jobless claims reinforced the narrative that the labor market remains stable, giving the Fed room to hold interest rates while monitoring war-related inflation risks. In the forex market, the euro fell 0.14% to US$1.1542 and the pound weakened 0.09% to US$1.3353, while the dollar rose 0.05% against the yen to 159.54.
Oil prices rose about 4.16% to US$106.47/barrel, raising concerns that the flow of goods in the Strait of Hormuz could be prolonged and push inflation back up. Because the US is a net energy exporter, the dollar is seen as relatively more protected than the eurozone, the UK, or Japan. Markets are also pricing in more aggressive tightening in Europe, with three ECB interest rate hikes considered fully priced in, and the Bank of England (BoE) approaching that level.
From the central bank, ECB board member Joachim Nagel said the ECB has the "option" to raise rates at its next meeting if the war triggers a spike in inflation. However, BoE Deputy Governor Sarah Breeden assessed that the risk of a second round of inflationary effects from energy this time is smaller than the 2022 shock, due to a weaker labor market. Overall, markets are assessing a return to hawkish global policy, including the Fed's repricing towards around 10 basis points of tightening this year.
Against the offshore yuan, the dollar rose 0.15% to 6.915. Trump also said he would meet Chinese President Xi Jinping on May 14-15, after the previous meeting was postponed due to the Iran war.
Source: Newsmaker.id
