Dollar holds near flat as markets weigh Iran ceasefire risks and oil supply shock
The U.S. dollar traded broadly steady on Thursday as investors assessed the stability of a fragile two-week ceasefire between the United States and Iran, while partial disruptions in shipping through the Strait of Hormuz kept oil prices elevated and stoked inflation concerns.
Ceasefire strains and Hormuz bottleneck underpin energy prices
The truce came under strain after Tehran accused both Washington and Israel of breaching the agreement’s terms, raising doubts about its durability and the risk of renewed escalation.
Maritime operations through the Strait of Hormuz remained partially restricted, with vessels still requiring special permits to transit. Shipping companies said they were waiting for clearer guidance before restoring full operations.
The bottleneck in the strait — a corridor that handles nearly 21% of global petroleum liquids consumption, according to the U.S. Energy Information Administration — has produced the largest disruption to global oil and gas flows in at least five weeks. With transit still constrained, analysts expect energy prices to stay elevated, feeding broader inflationary pressures that central banks are closely monitoring.
Major currencies little changed; yen softens ahead of Ueda remarks
The dollar index slipped 0.01% to 99.05. The euro edged 0.01% higher to $1.1663 and sterling gained 0.01% to $1.3393.
The yen weakened 0.13% to 158.8 per dollar, paring its earlier gains following the ceasefire announcement. Analysts pointed to expectations that Japan’s fiscal policy could turn more accommodative as regional tensions persist.
Data from Tokyo Tanshi showed overnight indexed swaps pricing in about a 55% chance of a Bank of Japan rate hike later this month. However, if the ceasefire deteriorates and geopolitical risk escalates, markets may scale back bets on an April move, potentially putting further downward pressure on the yen.
Bank of Japan Governor Kazuo Ueda is scheduled to address parliament at 0415 GMT, with investors watching closely for any signs of a hawkish shift that could tighten financial conditions worldwide by withdrawing liquidity and pushing up borrowing costs.
Inflation focus turns to U.S. PCE data
Attention later in the session will turn to U.S. February personal spending and the Federal Reserve’s preferred inflation gauge, the PCE deflator. The release will offer the first official read on how higher energy costs are feeding into consumer prices.
A Reuters poll of economists forecasts a 0.4% month-on-month rise in the PCE index. A stronger-than-expected print could intensify pressure on the Federal Reserve to keep rates elevated for longer, potentially prompting investors to pull back from risk-sensitive assets and reinforcing support for the dollar.
Fed funds futures, as reflected by the CME FedWatch tool, now imply a 68% probability that the Fed will leave rates unchanged at its next meeting, up from 50% a week earlier, underscoring mounting uncertainty over the U.S. inflation and growth outlook.
Analysts said the dollar-yen pair may remain rangebound ahead of the data and Ueda’s remarks, though a firm U.S. inflation reading could trigger a renewed dollar rebound against the Japanese currency.
Safe-haven dynamics and broader market positioning
Currency moves remained framed by the interplay of geopolitical risk and shifting interest rate expectations. During earlier phases of the conflict, the dollar drew support from the United States’ position as a net energy exporter, which makes it less vulnerable than many peers to supply disruptions.
Historically, periods marked by rising inflation and geopolitical instability have pushed investors to re-evaluate assets with finite supply or those considered stores of value outside the traditional financial system, especially when confidence in fiat purchasing power weakens. That backdrop is informing flows across both conventional haven assets and parts of the digital asset space.
Commodity-linked and digital currencies mixed
Among commodity-linked currencies, the Australian dollar slipped 0.13% to $0.7033, while the New Zealand dollar added 0.07% to $0.5826, reflecting a cautious risk tone despite elevated energy prices.
In cryptocurrencies, bitcoin fell 0.61% to $70,944.20 and ethereum dropped 1.35% to $2,180.21, as investors stayed wary of potential policy surprises and volatility driven by the twin forces of uncertain ceasefire dynamics and central bank decision-making.
Volatility risk rises as geopolitical and policy narratives converge
Market participants see a growing likelihood of sharper, sudden price swings across currencies, commodities and risk assets in the weeks ahead. The uneasy peace in the Middle East, coupled with unpredictable central bank responses to sticky inflation, has created a backdrop where sentiment can turn quickly and capital can shift across asset classes at short notice.
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