USD Poised for Weekly Loss Amid Hopes of US-Iran Deal
The US dollar weakened against major currencies on Friday (May 29th) and is on track for a second straight weekly decline following reports that the US and Iran have reached an agreement to extend the ceasefire and ease shipping restrictions in the Strait of Hormuz. Markets believe the possibility of de-escalation could reduce energy risk premiums and ease inflationary pressures, thus reducing the safe-haven support for the greenback.
President Donald Trump said he would make a final decision on Friday regarding the agreement to extend the ceasefire for 60 days, which would allow shipping to pass through Hormuz while negotiators discuss thorny issues such as Iran's nuclear program. The dollar briefly strengthened when the conflict broke out due to safe-haven flows and the perception that the US economy was relatively resilient to energy inflation, but that strength faded as uncertainty over the war's course weighed on sentiment.
In the currency market, the euro rose 0.26% to US$1.1678 and the pound strengthened 0.23% to US$1.3473. The dollar index (DXY) fell to 98.81 and is headed for its second weekly decline. Market participants believe that geopolitical uncertainty and central bank responses are hampering the policy narrative, leading to an uncertain dollar direction.
Market focus is also on the yen, which is holding near the sensitive 160 per dollar level, an area often associated with the risk of Tokyo intervention. USD/JPY is trading around 159.22, while the Japanese Ministry of Finance confirmed the government spent 11.7 trillion yen (US$73.5 billion) on foreign exchange intervention over the past month to support the yen.
Among commodity currencies, the Australian dollar rose 0.41% to US$0.71915, while the New Zealand dollar jumped nearly 1% to US$0.59920, its strongest level in more than three months, extending its rally after signals from the central bank that an interest rate hike is still possible. Looking ahead, the market is weighing the Iran-Hormuz headline combination, the trajectory of energy prices, and its implications for the Fed's interest rate expectations.
Source: Newsmaker.id
