Dollar Gains Slightly, Iran Deal Hopes Shake Again
The US dollar strengthened on Monday (June 1st) after posting a slight decline last week, as investors digested the latest developments in Middle East peace talks following the US and Iran's exchange of fire over the weekend. The incidents re-emerged doubts about the fragility of diplomatic efforts to end the war and restore energy flows.
The dollar index (DXY) rose 0.184% to 99.195, reversing some of last week's weakness fueled by expectations that a deal to open the Strait of Hormuz was imminent. The closure of the key oil route has pushed up energy prices and worsened the inflation outlook, leading some market participants to reassess the Fed's ability to raise interest rates this year.
The dollar's gains were briefly triggered by a Tasnim report that Iranian negotiators had stopped exchanging messages with the US through a mediator in response to the attack in Lebanon. However, the dollar's gains were pared back after President Donald Trump said he spoke through an intermediary with Hezbollah and obtained the group's commitment not to attack Israel.
Although the dollar rallied at the start of the conflict that broke out on February 28th—supported by safe-haven flows and the perception that the US economy was more resilient to energy inflation—some of that strength has been eroded by uncertainty over the conflict's direction. In major markets, EUR/USD fell 0.26% to 1.1632, while GBP/USD edged up 0.03% to 1.34565.
Markets are now in wait-and-see mode after the US military reported attacks on Iranian air defenses, a ground control station, and two drones deemed to be threatening shipping, while the IRGC claimed to have targeted an air base used by the US in retaliation. This combination maintains volatility and makes the dollar sensitive to headlines.
The focus next shifts to the Fed and US jobs data on Friday. Markets are now more likely to price in an interest rate hike as the next step than to expect a pre-war cut, as expensive energy has the potential to curb disinflation and the job market remains relatively strong. The Reuters consensus forecast is for 85,000 jobs to be added in May and the unemployment rate to remain at 4.3%.
In Asia, the yen returned to the spotlight, with USD/JPY weakening 0.28% to 159.71, near the 160 level, which is sensitive to the risk of Japanese intervention. Market participants also awaited Bank of Japan Governor Kazuo Ueda's speech on Wednesday for clues on policy direction, while the Australian dollar fell 0.29% to 0.7161 and the kiwi weakened 0.9% to 0.59365. (Arl)
Source: Newsmaker.id
