US dollar steadies as traders question prospects for near-term ceasefire

HONG KONG: The dollar found its footing in Asian trade on Friday, retracing some of the previous day’s decline as traders questioned reports that a ceasefire deal in the Middle East could be imminent.

Against Japan’s currency, the US dollar was up 0.2% at ¥160.235. The Australian dollar was down 0.1% at US$0.7045, while its kiwi counterpart was 0.2% weaker at US$0.5824.

The euro last bought US$1.1574, holding near its strongest in a week after the European Central Bank’s first interest rate hike in three years on Thursday. The British pound was flat at US$1.3415.

“There’s a question around the hopes of a deal, and questions around whether it will be met and agreed upon by Iran and the US,” said Michael Wan, senior currency analyst at Mitsubishi UFJ Financial Group in Singapore. “It sounds like it’s quite close, but they’re not exactly at the finish line.”

Brent crude slid 1.8% to US$88.76 a barrel in Asian trade, after President Donald Trump said the US and Iran could sign a peace deal as soon as this weekend that would reopen the Strait of Hormuz to shipping. Iran countered that it had not reached a final decision on an agreement.

The US dollar index, which measures the greenback’s strength against a basket of six currencies, was steady at 99.743, stabilising after slumping to its weakest level in a week on Thursday.

Data that day showed US producer prices increased more than expected in May, leading to the largest annual gain in 3-1/2 years as the Middle East conflict drove up the cost of energy products.

But traders found encouragement in the details of the report.

“The more important core PPI reading, which typically feeds directly into core PCE inflation, came in at 4.9% year-on-year, well below the 5.4% expected,” said Tony Sycamore, market analyst at IG in Sydney, referring to the Federal Reserve’s preferred gauge of cost-of-living increases. “This, combined with the fall in energy prices, helped calm inflationary concerns.”

Expectations for the timing of the Fed’s next rate hike shifted back to December after the report. Fed funds futures now price in an implied 63.3% probability the US central bank will keep rates on hold at its two-day meeting ending Oct 28, compared with an even chance a day earlier, according to the CME Group’s FedWatch tool.

The European Central Bank is now widely expected to lift interest rates again in September, according to LSEG data.

“The ECB delivered its first 25-basis-points hike since September 2023, with inflation and growth revisions hawkish at the margin,” analysts from Barclays wrote in a research note. “That said, it offered little guidance on if and when it will follow with more, though risks seemed skewed towards further action, barring a quick improvement in the inflation outlook.”

In cryptocurrencies, bitcoin was up 0.5% at US$63,645.84, while ether edged 0.4% higher to US$1,676.83.