Dollar Weakens After Reports of US-Iran Deal
The US dollar weakened against most major currencies after reports that the US and Iran had reached an agreement to extend the ceasefire, although it still awaits President Donald Trump's final approval.
The Bloomberg Dollar Spot Index fell 0.2% on Thursday, reversing its initial gains driven by the overnight clashes.
In the G-10 group, risk-sensitive currencies such as the Swedish krona and the New Zealand dollar led the gains, while the euro briefly reached US$1.1650. Markets viewed the possibility of de-escalation as a potential reduction in the geopolitical risk premium that had previously supported the greenback.
According to Axios, the US-Iran memorandum of understanding (MoU) includes a 60-day extension of the ceasefire, the opening of negotiations on the future of Iran's nuclear program, and unimpeded shipping through Hormuz. However, traders tempered their euphoria as the deal is not yet final and still hinges on Trump's approval, so the dollar's direction in the coming weeks is expected to remain headline-driven.
The dollar was also pressured by US inflation data. The April PCE price index rose 0.4% month-on-month, lower than the 0.5% forecast, which gives room for the view that the Fed could hold interest rates without needing to tighten again immediately. However, the swap market is still pricing in a roughly 60% chance of a quarter-point rate hike by the end of the year under Fed Chairman Kevin Warsh, amid concerns about "sticky" inflation due to global energy costs.
Since the conflict broke out in late February, the dollar is said to have risen by about 1%, while Brent has surged by about 30%, prompting investors to reassess each currency's resilience to commodity shocks. Goldman Sachs believes that if the conflict abates, the currencies hardest hit by the energy shock—including the Swedish Krona, New Zealand Dollar, and GBP—have the potential to outperform their peers as risk sentiment improves and the "terms of trade shock" reverses.
Source: Newsmaker.id
