The dollar continued to face pressure on Thursday, as optimism surrounding a potential de-escalation in the Iran-U.S. conflict bolstered currencies linked to oil. Meanwhile, Tokyo’s renewed verbal intervention to support the yen kept speculators on edge. On Wednesday, Iran announced that it was assessing a U.S. peace proposal, which sources suggested would officially conclude the war while leaving significant U.S. requests unaddressed, including Iran’s suspension of its nuclear program and the reopening of the Strait of Hormuz. Concerns among analysts have emerged regarding any potential agreement that fails to reopen the crucial waterway for shipping, as this could lead to a resurgence in oil prices, with Brent increasing by 0.8% in early trading. “It remains far from clear that there is any material movement toward reopening the Strait, or if we are instead stuck in a rebranded ‘ceasefire with no oil’ purgatory,” wrote Helima Croft.
A segment of the market will certainly perceive a one-page memorandum aimed at resuming negotiations within the next thirty days as a notable advancement,” she added. “However, an MoU is not expected to lead to an immediate resumption of shipping traffic and significant production restarts.” Expectations for de-escalation led to a decline in oil prices overnight, alleviating inflation concerns and contributing to a decrease in Treasury yields as markets adjusted their outlook on the likelihood of U.S. rate increases. The dollar index settled at 97.950, significantly below the previous week’s peak of 99.092.
The recent decline in oil prices has strengthened the euro, as Europe is significantly more dependent on imported oil compared to the United States. The euro was 0.1% higher at $1.1757 after reaching a two-week high of $1.1797 overnight. The yen received additional support from speculation that Japanese authorities intervened on Wednesday to purchase the currency, causing the dollar to drop to as low as 155.00 at one point. The dollar was last observed at 156.15, with traders vigilant following remarks from Japan’s leading currency official, Atsushi Mimura, indicating that the nation was not limited in its ability to intervene.
U.S. Treasury Secretary Scott Bessent is set to meet with Japan’s Prime Minister Sanae Takaichi next week to address the matter of curbing speculative yen selling, along with other pertinent issues. According to sources, authorities took action last Thursday, with money market data indicating that approximately $35 billion was sold to bolster the yen. Since then, the market has experienced three sudden increases in the yen up to Wednesday.