Dollar falls to 10-day low on US-Iran war deal
Market Reactions and Economic Implications
By Karen Brettell and Sophie Kiderlin
NEW YORK/LONDON, June 15 (Reuters) - The U.S. dollar fell on Monday and hit a 10-day low against the euro and sterling after an agreement to end the U.S.-Iran war pushed oil prices and Treasury yields lower while boosting risk sentiment.
Details of the US-Iran War Agreement
U.S. President Donald Trump said on Monday a memorandum of understanding aiming to end the war in the Gulf has already been signed by the United States and Iran.
Market Confidence in the Deal
Reports on the deal from both sides of the war boosted confidence that it would stick, said Marc Chandler, chief market strategist at Bannockburn Global Forex, adding that "markets want to believe it."
Terms and Next Steps
According to accounts from both sides, the agreement would reopen the blockaded strait and extend a ceasefire for a 60-day negotiation period, when contentious issues such as the future of Iran's nuclear programme are due to be decided.
An official signing ceremony for the agreement is due to be held on Friday in Geneva.
Still, markets remain somewhat cautious as they wait for details of the agreement and the final signing.
"The level of mistrust is so great that I think it's naive to assume it's going to be very smooth," said Chandler.
Currency and Financial Market Movements
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, was last down 0.20% at 99.60, with the euro up 0.25% at $1.1597. It earlier reached $1.1622, its highest since June 5.
Sterling strengthened 0.1% to $1.342.
The Japanese yen weakened 0.03% against the greenback to 160.25 per dollar, erasing earlier gains and holding near levels seen as potentially prompting official intervention. In cryptocurrencies, bitcoin rose 4.50% to $66,841.
CENTRAL BANKS IN FOCUS
Major central banks, including the Federal Reserve, the Bank of Japan, the Bank of England and the Reserve Bank of Australia, will deliver rate decisions this week. Markets focused on whether the peace deal will ease their inflation concerns and influence near-term monetary policies.
Federal Reserve Outlook
The Fed is widely expected to hold rates in the current range of 3.5% to 3.75% on Wednesday, but it may drop its easing bias. Traders will also watch for how hawkish a tone new Fed Chair Kevin Warsh strikes at the press conference following the statement.
Investors are pricing in 56% odds of a hike by December as the labor market improves and inflation stays above the Fed’s 2% annual target.
Bank of Japan and Other Central Banks
The Bank of Japan is set to raise interest rates to 1%, a 31-year high, at its two-day meeting concluding on Tuesday. It is also expected to signal readiness to keep pushing up borrowing costs to combat inflation risks despite the peace deal.
“The rate hike probably will not do much for dollar/yen directly since it's already discounted," said Chandler, though he added that people may view an intervention as being more likely if the yen continues to weaken.
Meanwhile, both the Reserve Bank of Australia and the Bank of England are expected to hold rates steady.
(Reporting by Karen Brettell and Sophie Kiderlin; Editing by Sam Holmes, Kim Coghill, Muralikumar Anantharaman, Diti Pujara and Andrea Ricci)
