Dollar Slips in Thin Liquidity, Focus on Hormuz
The US dollar fell against major currencies on Monday (May 25th) after hopes of reopening the Strait of Hormuz pushed oil prices below US$100 per barrel. However, a cautious tone persisted as the US and Iran both dampened expectations of an imminent deal.
Forex movements took place in thin liquidity as several major markets were closed for public holidays, including in the US, Hong Kong, the UK, and much of Europe. Under these conditions, geopolitical headlines and changes in energy prices are more readily reflected in dollar movements.
Against the yen, the dollar fell 0.2% to 158.91. Japan also added domestic context after Prime Minister Sanae Takaichi said the government would build additional reserves of around US$19 billion to subsidize fuel costs and ease pressures on the cost of living, while reiterating that there would be no additional borrowing overall to calm bond market concerns.
In Europe, the euro rose 0.33% to US$1.1641 and the British pound strengthened 0.55% to US$1.3499. The Australian dollar rose 0.58% to US$0.717, while the New Zealand dollar added 0.5% to US$0.5874. The dollar index (DXY) fell about 0.3% to 98.969.
The market's primary focus remains on US-Iranian dynamics. US Secretary of State Marco Rubio stated that there will be a "good deal" or Washington will deal with Iran in "other ways," while an Iranian Foreign Ministry spokesman said conclusions had been reached on many topics discussed in the memorandum, but that did not mean Tehran was close to signing a deal. The weekend was also marked by mixed signals from President Donald Trump: on Saturday he called the memorandum "largely negotiated," but on Sunday he asserted that the US blockade of Iranian shipping in the Strait of Hormuz would remain in place until an agreement is reached, certified, and signed.
From a fundamental transmission perspective, oil weakness reduces energy-based inflationary pressures and could reduce short-term support for the dollar through interest rate expectations, although uncertainty about the implementation and timing of normalization of shipping flows means the market repricing is likely to be gradual, rather than linear.
Market participants now await the release of key data this week, including the US ADP employment report on Tuesday and the eurozone confidence survey on Thursday, while monitoring developments in the Hormuz negotiations and any official statements that could alter perceptions of energy supply risks. (Arl)*
Source: Newsmaker.id
