Dollar Holds Weakness, Markets Weigh Hormuz Blockade
The US dollar index (DXY) halted its downward trend that began on April 6 and hovered around 98.20 during the European session on Thursday (April 16). The dollar found limited support as markets assessed the situation in the Strait of Hormuz as still highly uncertain, with the passage effectively blocked under a "double blockade."
However, safe-haven support also began to fade as expectations for a de-escalation of the conflict grew. Tehran was said to be willing to allow ships to pass through the Omani side if an agreement was reached to prevent a re-escalation. President Donald Trump declared the war "almost over," while a Bloomberg report highlighted speculation of a two-week extension of the ceasefire, although Trump downplayed the need for such a move and emphasized that negotiations were ongoing.
From a fundamental perspective, falling energy prices helped ease inflation concerns and lowered expectations for additional Fed tightening. The market widely expects interest rates to be on hold this month and potentially held steady through the end of the year. Cleveland Fed President Beth Hammack said the key to monitoring is how high energy prices rise and, especially, how long they last. St. Louis Fed President Alberto Musalem said the oil shock is likely to spill over into core inflation, with core inflation expected to remain near 3% throughout the year.
Going forward, the dollar's direction will be sensitive to developments in Hormuz shipping access (including the Omani option), the consistency of energy price declines/rises, signals about ceasefire negotiations, and communications from Fed officials regarding the duration of the energy shock and its implications for core inflation. (Arl)*
Source: Newsmaker.id
