The Dollar moved within a narrow range on Tuesday as markets monitored developments around a possible agreement to reopen the Strait of Hormuz, while also looking ahead to key US economic data due later in the day that could influence the Federal Reserve’s policy outlook.
A peace deal between the US and Iran would likely relieve pressure on currencies in oil-importing economies such as Japan and the euro area, while also reducing demand for the Dollar as a safe-haven asset.
US President Donald Trump said on Monday that discussions with Iran were still continuing, even after reports that Tehran had halted indirect negotiations with Washington aimed at ending hostilities. The uncertainty contributed to a modest decline in oil prices.
Investors have remained cautious about any signs of progress toward de-escalation in the US-Israeli conflict involving Iran, citing the fragility of a ceasefire reached in early April between Washington and Tehran.
Meanwhile, Lebanon’s announcement of a limited ceasefire between Iran-backed Hezbollah and Israel on Monday did little to move markets.
The Dollar index, which tracks the greenback against a basket of six major peers, fell 0.05% to 99.05. It has remained confined to a tight trading range between around 98.9 and 99.5 since mid-May, Reuters reports.
The Dollar initially strengthened at the start of the Iran conflict on 28th February, supported by safe-haven inflows and perceptions that the US economy was relatively insulated from energy-driven inflation. However, some of those gains have since faded amid uncertainty over the war’s direction.
Attention is now turning to US Labor Department job openings data due later in the day, ahead of Friday’s closely watched monthly employment report, as markets position for the Federal Reserve’s next policy move, with expectations leaning toward a further increase in the benchmark interest rate.
Friday’s US employment report is expected to show an increase of 85,000 jobs in May, while the unemployment rate is forecast to remain unchanged at 4.3%, according to a Reuters poll of economists.
Elsewhere, in Japan, Finance Minister Satsuki Katayama said on Tuesday that authorities were prepared to intervene in the currency market if necessary, while declining to comment on recent movements in exchange rates.
The Yen edged slightly lower to 159.72 per Dollar, remaining close to the 160 level that markets widely view as a potential trigger for intervention.
If the Dollar-Yen pair breaks above the 160 level, the chances of it moving past the 30th April high would rise significantly, increasing the probability of more forceful verbal warnings from authorities, as well as heightened scrutiny through rate checks or even direct intervention.
In addition, markets are also looking ahead to a speech by Bank of Japan Governor Kazuo Ueda on Wednesday, seeking clues on whether the central bank is likely to proceed with a rate hike next week.
However, action is still seen as likely, and despite easing inflation, concerns are growing that policymakers risk falling behind the curve.