Dollar Steadies as Markets Await Updates on Iran War and Central Bank Moves
By Rocky Swift
Market Reactions and Central Bank Developments
TOKYO, June 1 (Reuters) - The U.S. dollar held steady on Monday after a weekly loss as markets awaited the results of peace talks in the Middle East and signals on the timing of central bank rate hikes.
Dollar Index and Oil Market Movements
The dollar index edged lower last week on hopes for a deal between the United States and Iran to open the Strait of Hormuz shipping lane for oil.
Oil jumped in early trade after Israel ordered troops to move further into Lebanon in the battle with Iranian-backed Hezbollah.
U.S. President Donald Trump said on Friday he would soon decide on a proposed deal to extend the Iran ceasefire.
Impact of Middle East Tensions on the Dollar
U.S. jobs data later in the week will be in focus as Federal Reserve officials signal that the U.S. central bank may need to raise rates if the war accelerates already-high inflation.
"USD will be heavily influenced by developments in the US-Iran war and the U.S. non-farm payrolls report for May," said Joseph Capurso, head of FX at Commonwealth Bank of Australia.
"Once the Strait is reopened, over time the oil price will fade and interest rates will return as a greater influence on the USD," he added in a note.
Currency Movements and Ceasefire Negotiations
The dollar index of the greenback against a basket of currencies including the yen and the euro, was flat at 99.00, after last week's drop of 0.4%. The euro fell 0.08% to$1.165.
The yen weakened 0.08% to 159.41 per dollar. Sterling slipped 0.07% to $1.3449.
Details of the Proposed U.S.-Iran Ceasefire
A proposed deal would extend the U.S.-Iran ceasefire by 60 days and allow traffic to resume through the waterway, in normal times a conduit for a fifth of global shipments of crude oil and LNG, while negotiators work through contentious issues.
A senior Iranian source told Reuters an agreement was close but had not yet been approved.
Upcoming Economic Data and Central Bank Policy
U.S. nonfarm payrolls data due on June 5 are expected to show an unemployment rate of 4.3% and an increase of 85,000 jobs, according to a Reuters poll as of Friday.
Federal Reserve and European Central Bank Outlook
Financial markets are betting the Fed's next move will be to raise its key rate from the current range of 3.50% to 3.75%, probably by year's end. Officials had been eyeing a rate cut before the start of the Iran war.
The European Central Bank should raise rates this month even if a U.S.-Iran peace deal is reached, Isabel Schnabel, an ECB board member, told Reuters last week. She is set to speak in South Korea on Monday.
Bank of Japan and Japanese Yen Intervention
A speech by Bank of Japan Governor Kazuo Ueda on Wednesday is highly anticipated for signals to whether the central bank will proceed with a rate increase the following week.
While there is no consensus yet within the BOJ on the decision, a pause in the central bank's taper of government bond purchases is increasingly seen as a preferred option, said two sources familiar with the deliberations.
Japan's finance ministry said on Friday the government spent 11.7 trillion yen ($73.40 billion) intervening in currency markets over the previous month to support the yen, confirming what traders had widely suspected.
Other Major Currencies
The Australian dollar traded flat at $0.7181 against the greenback. New Zealand's kiwi fell 0.17% to $0.5978.
($1=159.4100 yen)
(Reporting by Rocky Swift; Editing by Clarence Fernandez)
