Dollar Eases as Markets Await Clarity on Geopolitics
The U.S. dollar weakened slightly during Asian trading on Thursday, as investors remained cautious and awaited clearer signals on whether tensions involving the United States, Israel, and Iran could ease. At the same time, expectations for further interest rate hikes by the Federal Reserve continued to decline.
Dollar Index Slips After Recent Gains
The U.S. dollar index, which tracks the currency against a basket of six major peers, fell 0.1% to 99.576 after posting its strongest single-day gain in a week during the previous session. Despite the pullback, overall market sentiment remains cautious due to ongoing geopolitical uncertainty.
Geopolitical Tensions Keep Markets on Edge
Comments from Iran’s foreign minister suggested that while the country is reviewing a U.S. proposal to end the conflict, it is not prepared to engage in direct negotiations. This uncertainty has left global markets lacking clear direction, particularly in Asia.
Analysts at Westpac noted that markets are currently driven by headlines, with investors trying to determine whether recent developments signal genuine de-escalation or simply a temporary pause before further escalation.
Oil Price Shock Reshapes Fed Expectations
Following disruptions in the Strait of Hormuz, energy prices surged, prompting traders to reassess inflation expectations. As a result, many investors now believe the Federal Reserve may keep interest rates unchanged for the remainder of the year.
According to data from CME Group’s FedWatch tool, markets are pricing in a 64.4% probability that the Fed will hold rates steady at its December meeting, up from 60.2% the previous day.
Market Participants Turn Cautious
Mike Houlahan, director at Electus Financial, noted that many investors have stepped back from active trading. He added that a ceasefire or agreement could quickly reverse inflation concerns, particularly if oil prices drop sharply.
Fed Policy Debate Intensifies
Stephen Miran, a Federal Reserve governor appointed by Donald Trump, stated that central banks should look beyond temporary oil-driven inflation spikes. He also suggested that current monetary policy may be overly restrictive and could be slowing economic growth.
Currency Markets Mixed Against Major Peers
Against the Japanese yen, the dollar dipped 0.1% to 159.39, remaining near its strongest levels since 2024. Meanwhile, expectations are rising that the Bank of Japan could raise interest rates at its upcoming meeting.
The euro edged up 0.1% to $1.1570 after recent losses, supported by comments from Christine Lagarde, head of the European Central Bank, who indicated that rate hikes remain possible if inflation persists.
Analysts at Societe Generale highlighted that currency markets are currently in a holding pattern, awaiting clearer signals from central banks and geopolitical developments.
Other Major Currencies and Crypto
The dollar remained stable against the Chinese yuan at 6.905 in offshore trading, following news that President Trump is expected to meet Chinese President Xi Jinping in May.
The Australian and New Zealand dollars were largely unchanged, trading at $0.6950 and $0.5806 respectively. The British pound held steady at $1.3365, as inflation data remained above target.
In the cryptocurrency market, Bitcoin slipped 0.2% to $70,815.26, while Ethereum fell 0.7% to $2,150.80.
