Dollar Strengthens as US Attacks on Iran Spark Caution
The US dollar strengthened in trading on Tuesday (May 26) after the latest US attack on Iranian targets eroded optimism about an imminent ceasefire, prompting investors to return to a defensive stance in the greenback.
Iran accused the US of violating the ceasefire following what Washington called a defensive attack in southern Iran. US Secretary of State Marco Rubio added that negotiations to end the conflict could "take several days," reinforcing market perceptions that diplomacy has not yet yielded any immediate certainty.
The euro weakened 0.15% to US$1.16265, while the dollar strengthened 0.29% against the Swiss franc to 0.785. The dollar index (DXY) edged up 0.135% to 99.15 after falling 0.3% in the previous session. The pound sterling fell 0.3% to US$1.3465.
Oil prices, which had been depressed below US$100 at the start of the week, rebounded following news of the attacks, with Brent rising 3.89% to US$98.87 per barrel after plunging 7% on Monday. This energy rebound revived the oil-based inflation channel, which tends to buffer expectations of policy easing and provide a cushion for the dollar even as US bond yields actually fell.
In the US, data showed consumer confidence weakened in May as inflation concerns related to the war with Iran increased, despite household perceptions of the labor market improving. However, market participants believe geopolitical headlines and oil movements still outweigh the short-term data.
The yen weakened 0.2%, with USD/JPY rising to 159.24, again approaching the sensitive 160 area as markets eyed potential intervention by Tokyo. In the bond market, the 10-year Treasury yield fell 8 basis points to 4.493% as US markets reopened after the holiday and caught up with the decline in global yields.
Looking ahead, market focus will be on developments in US-Iran negotiations and the stability of the ceasefire, as shifts in energy risk perceptions remain a key driver for the dollar, yen, and risk assets in the coming sessions.
Source: Newsmaker.id
