Dollar Pauses Gains as Markets Focus on Iran and Oil
The dollar steadied Thursday as markets weighed the Iran war and oil prices. Investors are monitoring central bank signals amid high energy costs and inflation.
The United States dollar remained steady against most major currencies on Thursday as markets awaited clarity on the conflict in Iran. The geopolitical situation continues to dictate the direction of oil prices, inflation, and central bank policy. While the Iranian foreign minister stated that the country is reviewing a proposal from the United States to end the war, there is currently no intention to hold direct talks to resolve the widening Middle East conflict.
The dollar has been the primary outperformer in currency markets since the conflict began in late February, largely because the United States is a net energy exporter, unlike Japan or the United Kingdom. In Singapore, the euro was flat at $1.1557, having recovered from mid-month lows near $1.40 but remaining well below its late-February levels. Sterling was slightly softer at $1.3349, following a similar monthly pattern of sharp decline and partial rebound.
ING currency analyst Francesco Pesole noted that while market sentiment has seen a slight improvement following constructive headlines, traders remain cautious about the prospect of de-escalation.
"Still, the FX market isn't ready to add another leg of de-escalation trade just yet."
The impact of the war on currency markets is primarily driven by energy costs. Following the closure of the Strait of Hormuz, oil prices have remained above $100 per barrel, leading traders to expect that the Federal Reserve will keep interest rates on hold throughout the year. In contrast, markets are pricing in multiple rate hikes from the European Central Bank and the Bank of England. European Central Bank President Christine Lagarde indicated that the bank would respond forcefully if inflation appears set to remain significantly above its 2% target for an extended period.
In offshore trading, the dollar was flat against the China yuan at 6.908. This follows an announcement that Donald Trump will meet with Xi Jinping in mid-May, a summit previously delayed by the regional conflict. The dollar also remained steady against the Switzerland franc at 0.7920, while the Japanese yen traded at 159.48, holding near its recent multi-year highs.
