Dollar runs out of steam as Israel-Iran truce boosts risk appetite
The dollar struggled to regain lost ground on Wednesday as investors decided to take on more risk following a fragile truce between Israel and Iran.
Markets were jubilant and an index of global shares hit a record high overnight as a shaky ceasefire brokered by U.S. President Donald Trump took hold between Iran and Israel.
The two countries signalled the air war between them had ended, at least for now, after Trump publicly scolded them for violating a ceasefire he announced.
Investors heavily sold the dollar following the news, having piled into the U.S. currency after pouring into the safe-haven currency during the 12 days of war between Israel and Iran that also saw the U.S. attack Iran's uranium-enrichment facilities.
The euro edged down 0.1% on the day, but at $1.1597, was still near its highest since October 2021, while sterling was unchanged at $1.3616, near its highest since January 2022.
While the truce between Israel and Iran appeared precarious, investors for now seemed to welcome any reprieve.
"The market is complacent about some of the downside risks," said Joseph Capurso, head of international and sustainable economics at Commonwealth Bank of Australia.
"The thing I get is this issue is not over, which means it could come back to be a driver of commodity prices and currency markets again."
In other currencies, the Swiss franc , which scaled a 10-1/2-year high on Tuesday, steadied at 0.8051 per dollar.
The yen lagged the rest of the major currencies, weakening on the day to leave the dollar up 0.37% at 145.4.
Some Bank of Japan policymakers called for keeping interest rates steady for the time being due to uncertainty over the impact of U.S. tariffs on Japan's economy, a summary of opinions at the bank's June policy meeting showed on Wednesday.
Against a basket of currencies, the dollar was up marginally at 98.1.
On Tuesday, Federal Reserve Chair Jerome Powell stuck to his cautious approach and reiterated that the central bank was in no rush to ease rates at his semi-annual testimony to Congress, but this did little to shift market expectations of an 18% chance that the Fed could cut in July, according to the CME FedWatch tool.
A raft of weaker-than-expected U.S. economic data in recent weeks have also supported expectations for Fed cuts this year, with futures pointing to nearly 60 basis points worth of easing by December.
Data on Tuesday showed U.S. consumer confidence unexpectedly deteriorated in June as households grew increasingly worried about job availability, another indication that labour market conditions were softening.
Source: Reuters
