U.S. Dollar Index Rises as Iran Conflict and Strong Jobs Data Support Greenback

TLDR

• The dollar rose to near six-week highs after conflicting signals over a U.S.-Iran peace deal
• Secretary of State Marco Rubio said there were “some good signs” in talks, but Washington and Tehran remain apart on key issues
• Strong U.S. economic data — falling jobless claims and a four-year high in manufacturing — supported the dollar
• The Japanese yen fell past 159 per dollar, giving back most of its gains from recent suspected intervention by Tokyo
• Emerging market currencies, including the Turkish lira and Indonesian rupiah, came under heavy pressure

The U.S. dollar held near a six-week high on Friday as conflicting signals from U.S.-Iran peace talks kept currency markets volatile.

Washington and Tehran remained at odds over Iran’s uranium stockpile and control of the Strait of Hormuz. However, U.S. Secretary of State Marco Rubio said there had been “some good signs” in the negotiations.

The dollar index rose 0.17% to 99.37, close to its recent peak of 99.515 — its highest level since April 7.

The euro fell 0.2% on the day to $1.1594 and was on track for a second straight weekly loss. The British pound dipped slightly to $1.342, brushing off data showing UK retail sales dropped by their most in nearly a year in April.

Strong U.S. economic data added to dollar support. Weekly jobless claims fell last week, and U.S. manufacturing activity climbed to a four-year high in May.

Japanese Yen Struggles Despite Intervention

The yen slipped further past 159 per dollar on Friday, sitting 0.1% lower at 159.09. The currency has now given back nearly 75% of its gains from a suspected recent intervention by Japanese authorities.

Japan’s core inflation slowed to a four-year low in April, which complicates the Bank of Japan’s path on interest rates. The BOJ is expected to raise rates only gradually, while other central banks like the European Central Bank are likely to move faster — putting the yen at a disadvantage.

On a trade-weighted basis, the yen is at record lows. That helps Japanese exporters but worsens the energy cost shock, as Japan relies heavily on imported goods.

Emerging Markets Feel the Strain

Currencies across emerging Asia came under pressure this week due to the surge in global oil prices.

Indonesia announced that all exporters of natural resources must store 100% of their export revenues in state-owned banks starting June 1. The move was aimed at boosting onshore dollar supply and stabilizing the rupiah.

Turkey’s lira hit record lows against the dollar on Friday after a court ruling went against the country’s main opposition party.

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