SINGAPORE – The dollar was little changed on Friday, heading for its biggest weekly decline since January, as investors sold safe-haven assets on optimism that a ceasefire in the Gulf would allow oil shipments to resume.
The dollar had soared in March as one of the few bulwarks of safety as oil prices soared amid the U.S.-Israel war against Iran, hurting stocks and gold, and bonds tumbled on concerns about inflation.
But those positions are being rolled back since a fragile ceasefire was agreed on Tuesday.
The euro rose 1.4% this week to trade at $1.1687, while the pound gained 1.7% since Monday to $1.3418.
The risk-sensitive Australian and New Zealand dollars are expected to rise nearly 3% against the dollar over the week, with the Australian dollar trading at just above 70 cents.
There was little movement in the Asian and European sessions on Friday. US inflation data is due later in the day, but the direction of the market is likely to depend on the outcome of the weekend’s peace talks between the US and Iran in Islamabad.
Jason Wong, senior strategist at BNZ in Wellington, said: “At the height of the war, people were buying the dollar, but now they’re selling the dollar because the tail risk of a very bad outcome has faded considerably.”
“The situation still looks a bit volatile, but a ceasefire that removes tail risks is important from a sentiment perspective,” he said, adding that the mood could change quickly if there is no progress in expected weekend peace talks.
fragile truce
“If there are positive negotiations, it will be dollar negative. And if the negotiations don’t go well on Monday and there is still a shortage of ships…things could turn around quickly,” Wong said.
There are few signs of progress in the Strait of Hormuz. In the first 24 hours of the cease-fire, only one oil product tanker and five dry bulkers navigated a route that before the war could have accommodated about 140 ships per day.
The yen, under years of pressure from Japan’s low interest rates and more recently the vulnerability of high oil prices, has hit a low against the dollar, but it hasn’t gone far, selling against other currencies as well, suggesting it remains unloved.
On Friday, the yen fell to 159.27 yen to the dollar. The dollar index fell 1.3% after gaining less than 0.1% so far this week.
The Chinese yuan, which hasn’t actually weakened since the Iran war broke out on February 28, posted its biggest weekly gain in 15 months and is trading at its strongest level since 2023.
Friday’s data showed factory gate prices rising for the first time in three years, indicating that true inflation may be starting to take hold after a long battle against deflation.
“Despite China’s role as the world’s largest oil importer, the yuan has emerged as a surprise winner in the Iran war,” said Lin Song, an economist at ING.
“At least a minority of market participants are talking about a reassessment of the ‘China risk premium’ amid heightened global uncertainty elsewhere, which is making China look increasingly like the grown-up in the room.”
