By Chibuike Oguh
NEW YORK, May 29 (Reuters) – The dollar fell against major currencies on Friday and was headed for a second straight weekly loss after reports that the United States and Iran had reached a deal to extend their ceasefire and ease restrictions on shipping through the Strait of Hormuz.
US President Donald Trump said he would make a final decision on Friday on a deal to extend the truce with Iran. The proposed deal would extend the ceasefire by 60 days and allow traffic to resume through the strategic waterway as negotiators work on contentious issues, including Iran’s nuclear program, four sources told Reuters.
The dollar had initially rallied at the start of the conflict, buoyed by safe-haven demand and the U.S. economy’s relatively limited exposure to energy-driven inflation. However, it has since given up some of those gains as uncertainty around the trajectory of the conflict has weighed on investor sentiment.
The euro was up 0.12% at $1.16620 and on track for a weekly gain. The pound rose 0.18% against the dollar to $1.3466, marking the second consecutive week of gains.
“We don’t have answers on a lot of things and that is creating a divergence or a lack of consensus or a complete narrative, especially for central banks,” said Juan Pérez, chief operating officer of Monex USA in Washington. “That’s why that’s reflected in the lack of movement in the U.S. dollar overall.”
The dollar index, which measures the U.S. currency against a basket of currencies, was steady at 98.92, on track to post a weekly loss.
Data on Thursday showed U.S. inflation rose at its fastest pace in three years in April, driven by higher energy prices due to the Iran war and cementing economists’ views that the Federal Reserve will keep interest rates unchanged well into next year.
“Stocks are ignoring any issues related to economic disruption and you’re getting pretty much the same kind of stagnation in currencies because if you look at the potential for rate hikes, according to the CME and futures, everything is on the side of rate hikes,” said Joseph Trevisani, senior analyst at FXStreet.
“There is nothing on the horizon other than possible rate increases. However, higher interest rates are not seen in dollars.”
YEN INTERVENTION SURVEILLANCE
The Japanese yen was trading at 159.27 per dollar, holding close to the traditionally significant 160 level that has historically prompted interventions by Japanese authorities.
Japan’s Finance Ministry confirmed on Friday that the government spent 11.7 trillion yen ($73.5 billion) intervening in currency markets over the past month to support the yen, confirming what traders had widely suspected.