The U.S. dollar stabilized on Thursday after a broad sell-off, as traders weighed the durability of a ceasefire between Washington and Tehran and awaited key U.S. inflation data that could reshape expectations for Federal Reserve policy.
At last check, the U.S. Dollar Index stood at 99.07. The euro slipped 0.01% to $1.1661, while the pound edged up 0.01% to $1.3393. The Japanese yen weakened 0.15% to 158.81 per dollar, giving back part of its earlier gains.
Oil up as Hormuz traffic stays restricted
The truce has done little to calm regional tensions. Fighting continued in Lebanon between Israel and Iran-backed Hezbollah, while Tehran accused both Israel and the United States of violating ceasefire terms.
Shipping through the Strait of Hormuz remained restricted to vessels with special permits, creating logistical bottlenecks and pushing crude prices up 3.45%. The United States, now a net energy exporter, is seen as less exposed to higher oil prices than major importers in Europe and Asia, but the disruption has already rattled global energy markets.
Traders warn that any breakdown in the ceasefire could drive crude decisively above the recent $91 per barrel peak, intensifying global inflation pressures and complicating monetary policy, particularly for energy-importing economies.
Fed path in focus ahead of PCE inflation data
Attention is turning to U.S. personal spending and PCE deflator data due later Thursday, with the core PCE price index expected to show year-over-year inflation holding at 2.8%. Such a reading would underscore sticky underlying price pressures and could narrow the Fed’s room to cut rates.
Fed chair Jerome Powell has reiterated a data-dependent stance. A stronger-than-expected inflation print could delay any planned rate cuts and support the dollar by keeping U.S. yields relatively attractive. According to the CME FedWatch Tool, markets currently price a 62% chance of a rate cut by the June meeting, a probability that could shift quickly after the data.
Recent domestic data adds to the case for patience. The ISM manufacturing PMI rose to 50.3, signaling the first expansion in the U.S. factory sector in 16 months and giving the Fed additional justification to maintain a restrictive stance until inflation is more firmly under control.
Japan policy expectations and yen moves
In Japan, the yen’s pullback came as rate expectations continued to evolve. Data from Tokyo Tanshi put the probability of a Bank of Japan rate hike later this month at 55%, with sentiment shifting after the ceasefire announcement.
Analysts at Matsui Securities cautioned that Japan’s policy outlook could change rapidly if the truce collapses, potentially reshaping expectations for the BOJ’s April meeting. BOJ governor Kazuo Ueda told lawmakers that real interest rates remain below zero and described financial conditions as accommodative.
Japan’s consumer confidence index fell in March for the first time in three months, signaling reduced household optimism amid geopolitical uncertainty.
A potential BOJ shift carries global implications. Japanese traders collectively hold more than $1 trillion in U.S. government debt. A rate increase at home could encourage repatriation of capital, prompting sales of U.S. Treasuries, pushing American yields higher, and reverberating across global asset classes.
Risk reallocation under geopolitical strain
President Trump said U.S. naval, air, and ground forces would remain deployed around Iran until the ceasefire is fully observed, underscoring the fragile nature of the halt in hostilities.
The five-week conflict has disrupted maritime flows and left Iran with leverage over key energy routes. Market participants are watching closely for signs of ceasefire deterioration, viewing any escalation as a signal to cut exposure to more speculative assets and rotate toward yield-bearing or geopolitical hedges.
These cross-currents are driving a broader reallocation of capital away from assets that depend on low interest rates and toward those seen as more resilient under higher-rate, higher-volatility conditions.
Moves in commodity and digital currencies
In the broader currency market, the Australian dollar slipped 0.06% to $0.7039, while the New Zealand dollar gained 0.17% to $0.5832.
In digital assets, bitcoin traded 0.49% lower at $71,030.07, and ethereum fell 1.06% to $2,186.50, as traders weighed higher-rate risks and the geopolitical backdrop against ongoing demand for alternative assets.
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