Currency Markets Drift as Traders Sceptical of US Efforts to End Iran War

Currency Markets Steady as Traders Doubt US Attempts to Resolve Iran War

Market Reactions and Investor Sentiment

By Gregor Stuart Hunter

Early Asian Trade and US-Iran Negotiations

SINGAPORE, March 25 (Reuters) - Currency markets showed signs of fatigue early in Asian trade on Wednesday, with traders cautious over U.S. President Donald Trump's efforts to bring an end to the war with Iran.

While Trump told reporters at the White House the U.S. was making progress in talks with Iran, Tehran has denied that direct negotiations have taken place, keeping investors on edge.

Currency Movements

The euro edged higher, up 0.1% at $1.1619, with most other currency pairs remaining unchanged. The British pound was up 0.1% at $1.3428, while the New Zealand dollar was flat at $0.5834.

Volatility and Market Fatigue

The subdued volatility contrasted with a surge in equity futures and a plunge in crude oil prices after Trump said on Tuesday the U.S. was making progress in its efforts to negotiate an end to the war. 

"For those reacting to every breaking headline around dialogue between the U.S. and its allies and Iran, including speculation of high-level talks and temporary ceasefire proposals, an element of fatigue is now firmly setting in," said Chris Weston, head of research at Pepperstone Group Ltd in Melbourne.

Central Bank Actions and Policy Outlook

Bank of Japan and Yen Stability

Against the yen, the U.S. dollar was steady at 158.645 yen, after the release of minutes from the Bank of Japan's January policy meeting showed many board members saw the need to keep raising interest rates without any specific pace in mind. 

Australian Dollar and Inflation Data

The Australian dollar fell as much as 0.2% to $0.6983 before rebounding to trade flat after the release of inflation data for February, which showed a 3.7% rise prior to the start of the U.S.-Israeli war with Iran, a slightly slower pace than expected by analysts.

US Federal Reserve Expectations

Although markets still anticipate no change in U.S. interest rates this year, expectations of policy tightening are rising. Fed funds futures now imply a 30.2% chance of a 25-basis-point hike at the Federal Reserve's December meeting, up sharply from 8.2% a day earlier, according to CME Group’s FedWatch tool.

The Fed may need to keep interest rates steady "for some time" before further cuts are warranted, Fed Governor Michael Barr said on Tuesday, noting continued inflation above the Fed's 2% target and the risks posed by the conflict in the Middle East. 

Bond Markets and Other Assets

Treasury Yields and Inflation Concerns

Bond markets rebounded after a volatile week, with the yield on the U.S. 10-year Treasury bond down 5 basis points at 4.338%. "Higher oil prices added to expectations of increasing inflationary pressures and tighter monetary policy," analysts from Westpac wrote.

US Dollar Index and Cryptocurrencies

The U.S. dollar index, which measures the greenback's strength against a basket of six currencies, was down 0.1% at 99.126.

In cryptocurrencies, bitcoin climbed 1.2% to $70,910.16 while ether was up 0.8% at $2,164.74.

(Reporting by Gregor Stuart HunterEditing by Shri Navaratnam)