Indian Share Markets Remain Closed; Gold Falls, Rupee Holds Steady
Investing.com - The dollar weakened in holiday-thinned trade on Monday, as increasing hopes for a U.S.-Iran peace deal boosted risk appetite and sent oil prices lower.
The dollar index, which tracks the greenback against a basket of currency peers, fell 0.3%, retreating from modest gains notched last week. Trading volumes were muted on account of holidays in the U.S. and elsewhere. The euro strengthened by 0.3% to $1.1643 and the British pound ticked up by 0.5% to $1.3491.
Market sentiment improved substantially after U.S. officials flagged some progress towards ending the Iran war and reopening the Strait of Hormuz. The dollar has been viewed as a relative safe haven during the crisis, due in part to the belief among some investors that the American economy’s heavy energy exports will help insulate it from a war-induced oil price shock. Indications that the conflict may be nearing a conclusion have dented the dollar, as a result.
"The dollar should stay firm near term, though our colleagues remain bearish over the medium and long term," analysts at BCA Research said in a note.
The Australian dollar, a frequent barometer for risk, rose by 0.6% against the greenback, recouping some losses from last week.
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Iran and the United States have reached a framework of a deal to end their more than two-month old conflict, but a potential memorandum of understanding does not include specifics about the management of the Strait of Hormuz, according to a news report citing an Iranian foreign ministry spokesperson.
An agreement between Tehran and Washington cannot be said to be imminent, although both sides have reached conclusions on a range of topics, the spokesperson said, according to Reuters.
The comments come after media reports over the weekend, quoting a senior White House official, suggested that a framework deal has been reached. The reports said an agreement would include the reopening of the Strait of Hormuz, a vital waterway off Iran’s southern coast through which roughly a fifth of the world’s oil flows. The strait has been all but shuttered to tanker traffic for weeks, driving up oil prices and fueling worries over a burst of inflation in countries around the world.
In exchange, the U.S. would reportedly lift a naval blockade of Iranian ports.
Notably, the Iranian foreign ministry spokesperson said that Tehran will not be taking tolls from vessels traversing the strait, potentially reversing a major threat that Tehran would move to solidify a financial stranglehold over the conduit. However, the spokesperson noted that any services which will be provided will "require a price but should not be presented as tolls."
Writing on social media, U.S. President Donald Trump flagged that he had told his representatives "not to rush into a deal," adding that the American blockade on Iranian ports would stay in effect until an agreement is "reached, certified, and signed."
(Ambar Warrick contributed reporting)
U.S. President Donald Trump said over the weekend that the U.S. and Iran had “largely negotiated” a framework agreement to end their conflict and reopen the Strait of Hormuz.
Separately, U.S. Secretary of State Marco Rubio said the U.S. and Iran had a "pretty solid" framework deal to reopen Hormuz and discuss Iran’s nuclear activities.
But Rubio, like Trump, hinted at potential military action if Iran did not accept a deal. He also reiterated Trump’s comments in that the U.S. was in no hurry to accept a deal.
Iran had over the weekend acknowledged progress in negotiations, but largely rejected U.S. demands to hand over its enriched uranium stockpile.
Despite the mixed signals, markets still cheered a potential end to the Iran war, sending oil prices sharply lower. This weighed on the dollar, as markets priced out expectations of prolonged energy-fueled inflation that could drive up interest rates later in the year.
A softer dollar and tumbling oil prices greatly benefited broader currency markets. The euro and the pound rose between 0.3% and 0.4% in holiday-thinned trade.
Asia FX firms, Indian rupee supported by hawkish RBI talk
The Indian rupee’s USD/INR pair was among the best performers, falling 0.5% and pulling back sharply from record highs after Reserve Bank of India Governor Sanjay Malhotra said the rupee appeared undervalued and that the central bank will do “whatever is required” to stabilize local currency markets.
The RBI had intervened earlier in May, selling tens of billions of dollars to stem weakness in the rupee. But intervention only brought limited relief to the rupee.
Other Asian currencies also firmed after losing some ground last week. The Japanese yen’s USD/JPY pair fell 0.2%, while the Chinese yuan’s USD/CNY fell 0.2%.
The Singapore dollar’s USD/SGD pair fell 0.2% after first-quarter gross domestic product data read much stronger than expected.