Dollar softens as Middle East ceasefire holds
Market Reactions and Currency Movements
By Saqib Iqbal Ahmed
NEW YORK, May 5 (Reuters) - The U.S. dollar edged down on Tuesday as markets weighed developments in the Iran war, while the yen nudged lower in muted trade after a suspected intervention by Tokyo last week sparked sharp gains.
The dollar index, which measures the U.S. currency against six peers, was 0.03% lower at 98.437 after rising 0.3% on Monday. The euro was 0.1% higher at $1.17005, while sterling was 0.1% higher at $1.35510.
Ceasefire Developments and Geopolitical Impact
"It's a bit of a stasis for the markets," said Shaun Osborne, chief currency strategist at Scotiabank.
"Yesterday we had these headlines suggesting that maybe the ceasefire was at risk of breaking down, but I think it was not lost on the markets generally that President Trump didn't take advantage of that to launch another wave of attacks," he said.
U.S. Defense Secretary Pete Hegseth said on Tuesday the ceasefire with Iran was not over, even as the U.S. and Iran exchanged fire in the Gulf as they wrestled for control of the Strait of Hormuz.
The U.S. military said on Monday two U.S. merchant ships made it through the strait, with the support of Navy guided-missile destroyers. Iran denied any crossings had taken place.
"I wonder, with this China visit coming up, it may give us a period here where that's going to be the focus ... (President Donald Trump) doesn't maybe want to rock the boat geopolitically too much ahead of that meeting," Osborne said.
Trump said on Monday he looks forward to seeing Chinese President Xi Jinping later this month.
Trade Data and Dollar Outlook
Data on Tuesday showed the U.S. trade deficit widened in March as an artificial intelligence investment boom pulled in imports, more than offsetting an increase in exports, which were partly boosted by petroleum shipments amid the Middle East conflict.
"The dollar is still quite strongly valued from a long-run point of view ... there's still the potential here for the U.S. dollar to slip back a little more in the next few months," Osborne said.
Yen and Japanese Market Intervention
Traders Keep Yen Vigil
TRADERS KEEP YEN VIGIL
Against the yen, the dollar rose 0.4% to 157.85, after sharp losses since Thursday, when sources told Reuters authorities had stepped into the currency market to arrest a steep selloff in the Japanese currency.
Data last week pointed to roughly $35 billion in spending by Tokyo to boost the yen, although analysts think it is unlikely to help the battered currency in the long term.
The yen has languished for years, weighed down by Japan's ultra-low rates and a widening gulf with higher-yielding developed markets, compounded by mounting fiscal unease. The war-driven energy shock has piled on the pressure.
Speculation on Further Intervention
A brief spike in the yen on Monday sparked speculation that Japan had once again intervened, especially after officials warned last week of such moves during the Golden Week holidays.
"It's probably going to take another round of significant intervention to push the dollar more significantly lower," Scotiabank's Osborne said.
Risk Appetite and Other Currencies
Risk On
RISK ON
The Australian dollar rose 0.3% to $0.7187, after the central bank raised interest rates, as expected, for the third straight meeting to tame inflation.
The central bank sharply raised its inflation forecasts, while downgrading the outlook for economic growth and employment due to the global energy shock.
"The RBA delivered a hawkish hike, though it still leaves in balance whether we'll see one or two more hikes by December," said Matt Simpson, a senior market analyst at StoneX.
Performance of Riskier Currencies and Cryptocurrencies
The dollar slipped against riskier currencies, falling 0.8% against the Mexican peso and nearly 0.7% against the South African rand.
Leading cryptocurrency bitcoin rose 2% to $81,271, its highest since January 31.
(Reporting by Saqib Iqbal Ahmed; Additional reporting by Sophie Kiderlin in London and Ankur Banerjee in Singapore; Editing byJacqueline Wong, Emelia Sithole-Matarise, Chizu Nomiyama, Rod Nickel)
