Safe Haven Unwind Continues, Dollar Nears February Level
The US dollar weakened to a six-week low on Wednesday (April 15), nearly erasing all gains since the Iran war broke out, after signs of renewed Washington-Tehran talks boosted risk appetite and reduced demand for the dollar as a safe haven. Trump said negotiations could resume in Pakistan within days, although the US blockade of Iranian ports remains in place after weekend talks failed to produce a breakthrough.
Markets continue to view the Strait of Hormuz as a risk hotspot. Tehran has effectively closed the waterway that normally carries about a fifth of global oil and gas shipments since February 28, triggering an energy surge and concerns about growth and inflation. The euro hovered around US$1.1786, near its highest level since early March, while sterling hovered around US$1.356. The dollar index returned to pre-war levels after rising by about 3% in early March; the dollar is now down nearly 2% this month on optimism about a ceasefire.
Investors' focus has shifted to the economic impact of the energy shock. Physical crude prices are said to remain above US$140/barrel, even though futures are back below US$100. Meanwhile, the IMF has cut its growth outlook and warned that a worse-case scenario could push the global economy closer to recession, with oil averaging US$110 in 2026 and US$125 in 2027. On the policy front, the energy boom has markets reconsidering the potential for an ECB/BoE interest rate hike this year, while also casting doubt on the Fed's scope for a cut. Former US Treasury Secretary Janet Yellen believes a Fed rate cut is still possible, although inflationary pressures from supply shocks remain a risk. (Arl)*
Source: Newsmaker.id
