Dollar Holds Near Six-Week High as Iran Deal Optimism Shapes Market Sentiment
The U.S. dollar traded largely unchanged on Thursday as investors balanced cautious optimism surrounding a potential Middle East peace agreement against ongoing concerns over inflation and interest rates.
The U.S. Dollar Index (DXY), which measures the greenback against a basket of major currencies, remained stable at 99.14 during early trading.
Market participants continue to assess geopolitical developments alongside central bank expectations, both of which are influencing currency movements globally.
Euro Weakens as Eurozone Economic Activity Slows Sharply
The euro remained flat at $1.1627 against the dollar after fresh economic data showed the Eurozone economy contracted at its fastest pace in more than two and a half years during May.
The slowdown was largely linked to rising living costs and economic pressures associated with the ongoing conflict in the Middle East.
Meanwhile, the British pound gained 0.1%, trading near $1.3444 against the U.S. dollar.
Iran Peace Talks Raise Hopes for Reduced Middle East Tensions
Investor sentiment improved after U.S. President Donald Trump stated that negotiations with Iran had entered the “final stages,” increasing expectations of a possible peace agreement.
However, Trump also warned that military escalation remained possible if talks fail, suggesting tensions could quickly return.
Iran confirmed it is reviewing Washington’s latest proposal regarding an end to the conflict.
Markets are closely monitoring developments because any agreement could help reopen the Strait of Hormuz, a key global oil shipping route that has faced severe disruptions since conflict intensified earlier this year.
Oil Prices Retreat but Remain Elevated Above Pre-War Levels
Reports indicating limited vessel movement through the Strait of Hormuz helped ease supply concerns.
As a result, Brent crude oil prices fell to around $103.97 per barrel, down from approximately $110 following recent comments from Trump.
Despite the pullback, oil remains significantly higher than pre-conflict levels near $70 per barrel, maintaining pressure on inflation expectations worldwide.
Investors remain concerned that prolonged energy disruptions could trigger another wave of inflation and potentially force central banks to tighten monetary policy.
Safe-Haven Demand Continues to Support the U.S. Dollar
The dollar has benefited from increased demand for safe-haven assets during geopolitical uncertainty.
Some investors believe the U.S. economy may be better positioned to withstand higher energy prices due to its role as a major oil and energy producer.
Analysts at ING noted that foreign exchange markets are pricing in possible de-escalation in the Middle East more cautiously compared with several weeks ago.
The firm added that expectations for a hawkish Federal Reserve stance are making it more difficult for traders to bet against the U.S. dollar.
Federal Reserve Inflation Concerns Keep Rate Hike Expectations Alive
Minutes from the Federal Reserve’s April meeting showed policymakers remain worried about persistent inflation risks.
Strategists at BCA Research highlighted that while the Fed signaled openness toward future policy easing, most participants still believe additional tightening may become necessary if inflation remains above the 2% target.
These concerns continue supporting Treasury yields and broader demand for the dollar.
Australian Dollar Falls After Weak Employment Data
The Australian dollar weakened against the greenback following softer-than-expected labor market figures.
Australia’s unemployment rate unexpectedly climbed to a four-and-a-half-year high, signaling potential weakness in the country’s previously resilient job market.
The data increased expectations that the Reserve Bank of Australia (RBA) will keep interest rates unchanged in June.
Officials previously indicated they were prepared to assess the impact of earlier rate hikes and geopolitical developments before considering additional policy adjustments.
