DXY Weakens After Israel-Lebanon Ceasefire, But Iran Risks and US Data Hold Back Declines
The US Dollar Index (DXY) weakened on Thursday (June 4) in Asia, holding around 99.50, after three consecutive days of gains. The decline occurred as demand for safe-haven assets eased following news that Israel and Lebanon agreed to renew a ceasefire, temporarily alleviating fears of a wider regional conflict.
The agreement, announced in a joint statement following US-led talks in Washington, was conditional, requiring a "complete cessation of fire" by Iran-backed Hezbollah. Israel and Lebanon also reportedly agreed to establish several "model security zones" where the Lebanese military would maintain exclusive control of the area, even though the two countries do not have formal diplomatic relations.
Despite the improved sentiment, geopolitical optimism remains limited. Media reports suggest President Donald Trump is considering ending the ceasefire with Iran if Tehran kills US troops. Trump also hinted that the blockade could last longer than expected—although he called that scenario unlikely—which in effect prolongs market uncertainty about the timing of normalization of flows in Hormuz.
From a fundamental perspective, the dollar still has a cushion from interest rate expectations. The latest US labor data—including the May ADP payrolls and JOLTS job openings—point to a resilient labor market, leading the market to increase bets that the Fed will hold interest rates high for longer.
The Iran war, which continues to impact energy markets, also keeps inflation risks alive, strengthening the argument for tighter monetary policy. The market is now pricing in about a 42% chance of a Fed rate hike in December, keeping the DXY's downside limited as long as US data remains solid and energy prices don't really fall. (asd)
Source: Newsmaker.id
