The U.S. dollar showed resilience against major currencies on Friday, buoyed by prospects of a ceasefire between the United States and Iran, and eased inflationary pressures from U.S. producer prices. The dollar rose 0.1% against the yen to 160.07 yen, while the euro held steady at $1.1576 following the European Central Bank's recent rate hike.
The Australian and New Zealand dollars both fell by 0.1%, trading at $0.7045 and $0.5830 respectively. Meanwhile, Brent crude prices dropped 1.6% to $88.94 a barrel as trading resumed in Asia, influenced by President Trump's announcement of a potential peace deal with Iran that could reopen the Strait of Hormuz.
U.S. producer prices increased more than expected in May, marking the largest annual gain in three and a half years. However, the core PPI reading was lower than anticipated at 4.9% year-on-year, calming inflationary concerns and shifting expectations for the Federal Reserve's next rate hike to December.
“Markets reversed late in the U.S. session after President Trump cancelled planned attacks on Iran, suggesting a deal could be signed as soon as this weekend.”
Analysts from Westpac
The European Central Bank is anticipated to raise interest rates again in September, following its first hike in three years. Analysts from Barclays noted the ECB's hawkish stance, although further guidance on subsequent hikes remains limited.
In the cryptocurrency market, bitcoin edged up 0.2% to $63,460.05, while ether saw a slight increase of 0.1% to $1,672.55.
“The more important core PPI reading, which typically feeds directly into core PCE inflation, came in at 4.9% year-on-year, well below the 5.4% expected.”
Tony Sycamore, market analyst at IG in Sydney
Background
The potential ceasefire between the U.S. and Iran could ease geopolitical tensions that have impacted global oil supply routes, particularly the Strait of Hormuz. The ECB's rate hike marks a significant shift in its monetary policy stance, responding to inflationary pressures within the eurozone.
Looking ahead, investors will closely monitor developments in U.S.-Iran relations and their impact on global markets, as well as the Federal Reserve's upcoming meeting in October, which could further influence currency and commodity movements.
