Dollar Holds Near Six-Week High as US-Iran Deal Uncertainty Weighs on Markets
Market Reactions and Currency Movements Amid US-Iran Tensions
By Rae Wee
SINGAPORE, May 22 (Reuters) - The dollar held near a six-week top on Friday, after a volatile overnight session on conflicting signals over a U.S.-Iran peace deal, though investors latched on to hopes of some progress.
Conflicting Signals from US-Iran Talks
Washington and Tehran stuck to opposing stances over the latter's uranium stockpile and control of the Strait of Hormuz, although U.S. Secretary of State Marco Rubio said there had been "some good signs" in talks.
The mixed messages whipsawed markets overnight, though moves in currencies were largely subdued in early Asian trade on Friday as investors awaited more clarity.
Dollar Performance Against Major Currencies
The dollar was a touch higher and stood at 99.24 against a basket of currencies, not far from its peak of 99.515 hit in the previous session, its highest since April 7.
The euro dipped 0.03% to $1.1613, while the pound was flat at $1.3431. Sterling was set to gain 0.8% for the week, having fallen more than 2% last week due to political turmoil in Britain.
Support from US Economic Data
The dollar found additional support from data which showed U.S. weekly jobless claims fell last week while manufacturing activity rose to a four-year high in May, underscoring resilience in the world's largest economy.
"We're coming to the end of week 12, we're six weeks in the ceasefire, and I'm just not really that convinced we're any closer to a resolution between the U.S. and Iran," Tony Sycamore, a market analyst at IG, said of the Middle East war.
"I still feel like the risks are for the U.S. dollar to go higher, because I really just don't see a way out of this situation in the Middle East without them sort of needing to be more forceful."
Movements in Other Major Currencies
Elsewhere, the Australian dollar fell 0.06% to $0.7145, while the New Zealand dollar bought $0.5873.
Asian Currencies Under Pressure
ASIAN CURRENCIES UNDER PRESSURE
Yen Weakness and Japanese Intervention
The U.S. dollar's strength and persistently high oil prices have spelled pain for the yen, which on Friday struggled on the weaker side of 159 per dollar. It was 0.1% lower at 159.09 per dollar.
The renewed weakness in the yen comes despite likely intervention from Tokyo just weeks ago to shore up the currency, leaving traders on alert for further moves by Japanese authorities.
"The yen has now given up more than half of its post-intervention gains... risks of further FX intervention are undoubtedly mounting, particularly as officials have indicated that there is no real limit as to how much, or how often, they can step in to protect the currency," said Matthew Ryan, head of market strategy at Ebury.
Data on Friday showed Japan's core inflation slowed to a four-year low in April, complicating the outlook for the Bank of Japan's rate-hike path.
Emerging Asian Currencies and Policy Responses
Currencies in emerging Asia have also come under immense pressure owing to the global oil shock, forcing policymakers to take increasingly urgent and unusual steps to shore up their economies.
Earlier this week, Indonesia announced a tightening of the state's grip over the country's abundant natural resources and said all exporters of natural resources must store 100% of their export revenues in state-owned banks from June 1, in a move to support the plummeting rupiah.
"The rupiah has been under tremendous pressure and thus these are measures aimed at directly intervening to stabilize the rupiah by increasing onshore U.S. dollar supply," said Nigel Foo, head of Asian fixed income at First Sentier Investors.
"A currency's value is a representation of a country's fundamentals and that of Indonesia has clearly been deteriorating."
(Reporting by Rae WeeEditing by Shri Navaratnam)
