Dollar Recovers, Risk-Off Sentiment Persists Despite Trump's Iran Strike Delay
The US dollar erased the previous day's losses on Tuesday (May 19), while US stocks and government bonds weakened as President Donald Trump's decision to postpone a planned strike on Iran failed to restore market risk appetite. The Bloomberg Dollar Spot Index rose 0.3%, after breaking a six-session winning streak on Monday.
In the bond market, the 10-year US Treasury yield rose 2 bps to 4.61%, confirming that interest rate pressure remains a key theme amid inflation concerns. Citigroup believes bond market participants are beginning to consider 5.5% as a new "round number" for the 30-year Treasury yield as inflation expectations are reset higher.
Trump said the delay in new bombings on Iran came after Saudi Arabia and other Gulf allies requested more time for diplomacy. However, the market remains cautious as geopolitical uncertainty remains high and there are no signs of a breakthrough that would significantly lower the risk premium.
In Europe, GBP/USD fell 0.3% to 1.3389 after data showed UK companies cut jobs in April, the fastest pace since the start of the pandemic. This decline came after sterling briefly strengthened 0.8% on Monday—its best day in more than two weeks—when Andy Burnham said he would not change the government's borrowing limit if in power, allaying fiscal concerns.
In Asia, USD/JPY rose 0.2% to 159.16, its highest since April 30. The yen's weakness re-raised the risk of intervention and boosted interest in tail risk hedging strategies in USD/JPY options, although implied volatility remained near cyclical lows.
Meanwhile, AUD/USD fell 0.8% to 0.7114, nearing a three-week low. RBA official Sarah Hunter assessed the risks to Australia's inflation expectations as "elevated," and the central bank said a third consecutive interest rate hike provides room to monitor the impact of rising fuel prices related to the Middle East conflict on households and businesses. (arl)*
Source: Newsmaker.id
