Dollar Remains Under Pressure Amid Middle East Peace Hopes
The U.S. dollar stayed weak on Thursday as investors continued betting on a possible de-escalation in the conflict between the United States and Iran.
Improving sentiment surrounding the Middle East supported oil-linked currencies, while renewed verbal intervention from Japanese officials boosted the yen and kept currency traders cautious.
Iran Reviews US Peace Proposal
Iran confirmed on Wednesday that it is reviewing a U.S. peace proposal that could formally end the conflict.
However, reports indicated that several major issues remain unresolved, including U.S. demands for Iran to suspend its nuclear program and reopen the Strait of Hormuz to global shipping traffic.
Analysts warned that any agreement failing to fully restore shipping access through the key waterway could quickly push oil prices higher again.
Helima Croft said markets remain uncertain over whether genuine progress is being made toward reopening the Strait of Hormuz.
She noted that while some investors may view a temporary memorandum of understanding as a positive step, it would likely not immediately restore shipping flows or oil production.
Oil Prices Stay Elevated Despite Pullback
Hopes for easing geopolitical tensions caused oil prices to plunge nearly 8% overnight, helping reduce inflation concerns and lowering U.S. Treasury yields as traders scaled back expectations for additional Federal Reserve rate hikes.
Still, Brent Crude prices remained elevated near $101 per barrel, well above levels seen before the Iran conflict escalated.
The decline in oil prices supported the euro because Europe relies more heavily on imported energy compared with the United States.
Euro and Australian Dollar Gain Strength
The euro strengthened slightly to around $1.1757 after touching a two-week high during overnight trading.
Meanwhile, the U.S. Dollar Index fell near 97.9, remaining close to its recent two-week lows and significantly below last week’s highs.
The Australian dollar also edged higher, trading near $0.7242 after approaching a four-year high earlier in the week.
Pound sterling remained relatively stable ahead of key local elections in the United Kingdom.
Global investors are closely monitoring the elections amid concerns that weak results for the ruling Labour Party could trigger political instability and renewed worries about Britain’s fiscal outlook.
Yen Strengthens on Intervention Speculation
The Japanese yen received additional support from speculation that Japanese authorities intervened in the currency market on Wednesday to strengthen the currency.
At one point, the dollar fell to 155 yen, marking the Japanese currency’s strongest level in ten weeks.
The dollar later traded near 156.15 yen as traders remained cautious following comments from Japan’s top currency diplomat, Atsushi Mimura, who stated that Japan faces no limits on intervention measures.
US and Japan Expected to Discuss Yen Weakness
Next week, U.S. Treasury Secretary Scott Bessent is expected to meet Japanese Prime Minister Sanae Takaichi.
According to reports, the discussions will include efforts to curb speculative selling of the yen and broader currency market developments.
Reuters sources previously reported that Japanese authorities likely spent around $35 billion last week to support the yen through market intervention.
Since then, markets have witnessed several sharp spikes in the Japanese currency.
Analysts Expect Yen Weakness to Continue
Despite recent intervention efforts, analysts remain skeptical about the yen’s long-term strength.
Masahiko Loo said the yen will likely remain under pressure unless the Bank of Japan follows intervention measures with additional interest-rate hikes.
He added that repeated interventions increase the possibility of broader policy action during the June-to-July period, similar to measures seen in late 2024.
