The dollar experienced a decline in its recent gains during Asian trading on Thursday as investors were seeking indications of a de-escalation in the U.S.-Israeli conflict regarding Iran and tempered expectations for interest rate hikes in America.
Amid ongoing geopolitical uncertainty, the dollar index, which measures the performance of the U.S. currency against a basket of six other currencies, dropped by 0.1% to 99.576 on Thursday, following its largest daily gain in a week during the previous session.
Analysts at Westpac highlighted in a research note: “The markets continue to be significantly influenced by news events, with a strong focus on assessing whether the latest updates represent a genuine attempt to ease tensions.”
After the closure of the Strait of Hormuz led to surging energy prices, traders are second-guessing previous inflation forecasts and are now anticipating that the Federal Reserve might maintain its current monetary policy throughout the year.
According to the CME FedWatch Tool, there is a 64.4% chance that the U.S. central bank will keep interest rates unchanged during the December meeting, compared to 60.2% just a day prior.
The dollar fell by 0.1% to 159.39 yen, nearing its strongest levels since 2024, while the yield on Japanese government bonds maturing in two years reached its highest point in nearly thirty years.
Data from the London Stock Exchange indicates that markets anticipate a 61.9% chance of a quarter-point interest rate increase to 1% at the upcoming meeting of the Bank of Japan on April 28.
The euro gained 0.1% to $1.1570, stabilizing after a two-day decline, following comments from European Central Bank President Christine Lagarde on Wednesday, which suggested that interest rates may rise in the eurozone if the ongoing conflict in the Middle East leads to prolonged inflation.
Against the Chinese currency, the dollar remained largely unchanged at 6.905 yuan in offshore trading, after Trump announced he would meet with Chinese President Xi Jinping on May 14-15, following a postponed meeting due to the Iran conflict.
The Australian dollar saw little change, standing at 0.6950 U.S. dollars, while the New Zealand dollar remained steady at 0.5806 U.S. dollars.
The British pound also didn’t shift much, trading at 1.3365 U.S. dollars, trying to avoid a third consecutive daily decline after data released on Wednesday showed consumer price inflation remained at 3% in February, unchanged from January but still above the target level.
In the cryptocurrency market, Bitcoin fell 0.2% to $70,815.26, while Ethereum dropped 0.7% to $2,150.80.