The dollar remained steady near its highest level in a week as tensions between the US and Iran intensified, complicating peace talks. President Donald Trump expressed dissatisfaction with the ongoing negotiations, dismissing reports of a joint shipping management deal between Iran and Oman. Meanwhile, the yen weakened to its lowest point since April, nearing levels that previously triggered intervention by Japanese authorities.
Oil prices rebounded as hopes for a swift resolution to the US-Iran tensions faded, leading investors to anticipate a stronger dollar. The Federal Reserve's focus on combating inflation amid rising energy prices has further contributed to this expectation. The euro dipped slightly to $1.1620, while the pound fell by 0.1% to $1.34176.
The risk-sensitive Australian dollar weakened by 0.2% to $0.71305, and the New Zealand dollar remained largely flat at $0.58965. The dollar index, which measures the greenback's strength against a basket of six major peers, held steady at 99.288, close to its highest level since May 22.
“Geopolitics and the subsequent inflation risks remain a key concern.”
Alex Saunders, Citi's head of global quant macro strategy
Investors are now looking ahead to the release of the Federal Reserve's preferred inflation gauge, the core PCE deflator, which will influence the broader interest rate outlook. The yen's recent weakness has raised questions about the effectiveness of past interventions and whether Japanese authorities will act again if the yen breaches the 160 level.
Markets are pricing a roughly 70% chance of a quarter-point interest rate rise at the Bank of Japan's upcoming policy meeting, according to LSEG data.
“The broader question is whether it was worth it for what essentially amounts to just a single month's relief.”
Tony Sycamore, market analyst at IG
Background
The ongoing geopolitical tensions and their impact on currency markets underscore the complex interplay between international relations and economic policy. As the situation develops, market participants will closely monitor central bank actions and geopolitical developments for further cues.
As the situation develops, market participants will closely monitor central bank actions and geopolitical developments for further cues.
