SINGAPORE (Reuters) – The dollar was little changed on Friday and was headed for its largest weekly drop since January, as investors sold safe assets on optimism that oil shipping will resume if a ceasefire holds in the Gulf.
The dollar had towered in March as one of the few bastions of safety as the U.S. and Israeli war on Iran sent oil prices rocketing and hit stocks and gold, while inflation worries sank bonds.
But since a shaky ceasefire was agreed on Tuesday those positions are being unwound.
The euro has rallied 1.4% this week to trade at $1.1687, while sterling has shot up 1.7% since Monday to $1.3418.
The risk-sensitive Australian and New Zealand dollars are looking at weekly rises of nearly 3% on the dollar, with the Aussie trading just above 70 cents.
Moves in the Asian and European sessions were small on Friday. U.S. inflation data is due later in the day, though markets’ direction is more likely to hinge on the outcome of weekend peace talks between the U.S. and Iran in Islamabad.
“People were buying the U.S. dollar when the war was at its most intense moment and now they’re selling as the tail risk of a really bad outcome has faded quite a bit,” said Jason Wong, senior strategist at BNZ in Wellington.
“Even though it still looks a bit shaky, the ceasefire removing that tail risk is important from a sentiment point of view,” he said, adding that the mood could turn very quickly if the anticipated weekend peace talks don’t yield progress.
“If there are positive talks, that would be dollar-negative. And if we get to Monday and talks went badly and there’s still a lack of ships … things could turn around quickly,” said Wong.
In the Strait of Hormuz there has been little sign of progress. In the first 24 hours of the ceasefire, just a single oil products tanker and five dry bulk carriers sailed through a passage which before the war accommodated about 140 ships a day.
The yen , under pressure for years from Japan’s low rates and more recently from its vulnerability to high oil prices, lifted off lows against the dollar – but not far and was sold against other currencies, suggesting it remains unloved.
The yen slipped to 159.27 per dollar on Friday. The U.S. dollar index was up less than 0.1% but was 1.3% lower so far this week.
China’s yuan, which has not really fallen since the Iran war erupted on February 28, was set for its biggest weekly rise in 15 months and is trading at its strongest levels since 2023.
Data on Friday showed factory gate prices rising for the first time in three years, a sign that genuine inflation may be beginning to take hold after a long battle with deflation.
“The CNY has been a surprising winner of the Iran war, despite China’s role as the largest oil importer in the world,” said ING economist Lynn Song.
“At least a few market participants have mentioned re-evaluating the ‘China risk premium’ amid rising global uncertainty elsewhere, which has led to China looking more and more like the adult in the room.”
