Dollar wobbles as fragile US-Iran ceasefire keeps markets on edge
The dollar remained on a shaky footing on Thursday after broad losses, as investors anxiously assessed whether a fragile two-week ceasefire between the United States and Iran would hold.
The ceasefire deal appeared to be on thin ice, as Israel continued its parallel war against the Iran-aligned militia Hezbollah in Lebanon, while Tehran accused both Israel and the U.S. of violating the agreement and said that proceeding with peace talks would be "unreasonable."
The Strait of Hormuz also remained shut to vessels sailing without a permit and shippers said they needed more clarity before resuming transit, ticking oil prices higher.
"There are probably some doubts emerging over whether the ceasefire expectations can really be sustained — or whether a ceasefire can even be finalized in the first place," said Sho Suzuki, market analyst at Matsui Securities.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro,wobbled to be down 0.01% at 99.05. The euro was up 0.01% at $1.1663 while sterling edged 0.01% higher to $1.3393.
The yen handed back some of the previous day's gains following the announcement of the truce in the Middle East conflict, weakening 0.13% against the greenback to 158.8 per dollar.
"With the Middle East situation becoming more prolonged, there seems to be a view that fiscal policy could turn more expansionary again. That, in turn, is contributing to yen weakness," Suzuki said.
The overnight indexed swap (OIS) market is pricing in a 55% chance of an interest rate hike in the Bank of Japan's upcoming meeting later this month, data from money market broker Tokyo Tanshi showed. If the ceasefire were to collapse, expectations for the April rate increase could start to decline, which could in turn lead to yen weakness, Suzuki said.
"The rate hike really depends on the situation in Iran, so the BOJ probably wants to wait until the very last minute before the meeting to assess how things develop," Suzuki said.
BOJ Governor Kazuo Ueda is expected to appear in the parliament from 0415 GMT on Thursday.
The U.S. dollar has been the major beneficiary of the Iran War among currencies, in part because the U.S. is a net energy exporter and therefore less exposed to the economic hit that oil importers like Japan and many European countries might face.
The five-week war has shaken investor confidence, triggering the largest disruption to global oil and gas supplies on record.
The uneasy truce leaves Iran with greater leverage over shipping through the vital strait than before the conflict, analysts say, after President Donald Trump backed off from his threats to attack Iran's civilian infrastructure.
The U.S. is set to release February personal spending and the PCE deflator on Thursday. Despite improved sentiment following the ceasefire agreement, the dollar-yen pair may remain range-bound in Tokyo trading, although strong U.S. data could trigger a rebound in the dollar, Akihiko Yokoo, senior analyst at Mitsubishi UFJ Bank, said in a note.
The Australian dollar weakened 0.13% versus the greenback to $0.7033. New Zealand's kiwi strengthened 0.07% versus the greenback to $0.5826.
In cryptocurrencies, bitcoin fell 0.61% to $70,944.20. Ethereum declined 1.35% to $2,180.21.
