Dollar and oil rebound on uncertainty surrounding US-Iran talks
Yen falls as BoJ Gov. Ueda avoids hints of April rate hike
Wall Street rises at slower pace, Netflix tumbles as co-founder resigns
Gold trades quietly as traders await new Iran-related headlines
Investors await new round of US-Iran peace talks
The US dollar rebounded somewhat against most of its major peers, with the only exception being the Canadian dollar, which continued outpacing its neighboring counterpart, perhaps due to the latest rebound in oil prices.
Although both the US and Iran agreed to hold fresh ceasefire talks, the fact that the Strait of Hormuz remains closed, combined with the blockade of Iranian ports by the US, likely keeps a floor on oil prices as supply concerns remain.
Maybe that’s why the US dollar gained some ground as well. In case truce efforts collapse, higher oil prices could revive inflation fears and thereby push the greenback even higher. However, yesterday’s rebound was only modest, perhaps as US President Trump tried to keep hopes of permanent peace alive.
Yesterday, the US President noted that they are very close to making a deal with Iran, a statement that was followed by an announcement that Israel and Lebanon would enter a 10-day ceasefire, which came into effect shortly after and remains in effect today. He added that he is planning to invite Lebanon President Joseph Aoun and Israeli Prime Minister Benjamin Netanyahu to the White House for negotiations, the first between the two nations since 1983.
The uncertainty surrounding peace talks had an impact, though not a meaningful one, on Fed rate cut bets. The probability that the US central bank will hit the rate cut button by the end of the year was further reduced to around 35%.
BoJ’s Ueda pushes back on April hike, yen slides
The yen has been losing the fight against the dollar for a third day today, with hopes of a ceasefire weighing on expectations that the BoJ may raise interest rates later this month. Governor Ueda himself helped such bets to further be scaled back.
At a press conference following the International Monetary Fund (IMF) meeting in Washington, Ueda said that his nation is facing sticky inflation due to a supply shock that is harder to control through monetary policy channels than inflation driven by strong demand.
Although he added that real interest rates remain low and that Japan’s environment is still accommodative, which keeps the rate-hike door wide open, his remarks left investors scratching their heads regarding the timing of the next rate hike, with the probability of that happening this month dropping to around 15%.
Dollar/yen is now trading above 159.00, a zone around which Finance Minister Katayama becomes more vocal about intervention. Indeed, just yesterday, she said that close discussions on foreign exchange issues were held with US Treasury Secretary Bessent, adding that they are prepared for “bold” action if deemed necessary. That said, an intervention episode not accompanied by a BoJ rate hike may not yield the desired outcome.
Wall Street rally loses momentum, gold in wait-and-see mode
On Wall Steet, all three of the main indices extended their gains on Thursday, although at a slower pace, with today’s futures market pointing to a further slowdown in the latest recovery. Although Netflix results came in better than expected, the announcement by co-founder Reed Hastings that he is planning to depart in June caused the stock to plummet 9% in after hours trading. This combined with some cautiousness regarding Middle East peace talks, is keeping further gains in check.
Gold traded quietly yesterday and continues in a similar fashion today, hovering around the 50-day exponential moving average (EMA). It seems that a permanent ceasefire may be needed for gold to resume its prevailing recovery, but even if this is the case, the ceasefire celebrations may be more evident in riskier assets, like stocks.