Dollar Weakens, US-Iran Deal Triggers Unwinding of USD Longs
The US dollar weakened against all G-10 currencies on Monday (June 15th) after the United States and Iran reached a temporary agreement to reopen the Strait of Hormuz. The Bloomberg Spot Dollar Index briefly fell as much as 0.4% before paring some losses, extending the previous week's 0.4% decline.
The dollar's pressure came as the market reduced demand for safe havens after the risk of energy disruptions began to subside. The 2-year US Treasury yield fell 5 basis points to 4.03%, while Brent plunged 5.5% to below US$83/barrel. This combination reinforces the narrative that the market is starting to lower expectations for energy inflation and the risk of prolonged high interest rates.
In the FX market, several momentum desks were reported to have begun unwinding their long dollar positions, following other hedge funds that had been building short positions since Thursday. The cost of short-dated currency hedging also fell as the renewed volatility sell-off emerged, although market participants were still awaiting official details of the US-Iran deal.
The Swedish krona led gains among G-10 currencies, while the euro and Australian dollar also strengthened. EUR/USD rose 0.5% to 1.1622, although ECB President Christine Lagarde continued to warn that high energy prices were beginning to spread to other parts of the economy. EUR/GBP rose 0.2% to 0.8646, while AUD/USD strengthened 0.6% to 0.7088, its highest level since June 5.
Fundamentally, the dollar's weakness reflects changes in global risk transmission. If Hormuz opens and oil prices remain low, energy inflation pressures could ease, US yields could potentially stabilize lower, and safe-haven demand for the USD could diminish. However, the scope for dollar weakness still depends on the signing of the deal, the details of Hormuz's implementation, and the central bank's response to inflation risks that have not yet fully dissipated. (Arl)
Source: Newsmaker.id
