Dollar Weakens as Markets Calculate Chances of a US-Iran Deal
The dollar index fell below 98 on Thursday (May 7), extending the previous session's decline as market expectations grew that the US and Iran were nearing a deal to end the war.
Reports suggested the two sides were moving toward a 14-point, one-page memorandum of understanding aimed at formally ending the conflict, reopening potential access to the Strait of Hormuz, and laying the groundwork for more detailed nuclear negotiations. However, President Donald Trump emphasized that no agreement was final and warned that military action could resume if Tehran was deemed non-compliant.
Easing geopolitical risks contributed to sharp pressure on oil prices. The decline in oil prices was perceived as reducing inflationary pressures, slightly moderating expectations that central banks would need to maintain tighter policy for longer. In terms of transmission, weaker oil prices reduced inflation concerns, depressing the premium for tighter policy, and in turn weighing on the dollar.
On the other hand, a cautious message continued to emerge from Fed officials. Chicago Fed President Austan Goolsbee assessed that inflation has not continued its decline towards the 2% target and has actually increased since the conflict began, which could restrain the pace of policy easing expectations.
Going forward, markets are likely to monitor two main risk channels: developments in the implementation of the US-Iran deal and its implications for oil, as well as further signals from central bank officials regarding inflation dynamics and the need to maintain restrictive policy conditions. (asd)
Source: Newsmaker.id
