Fragile US-Iran ceasefire weighs on markets as dollar stagnates

The dollar held its breath after broad losses in early trade Thursday, as investors anxiously assessed whether a fragile two-week ceasefire between the United States and Iran would hold.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.03% to 99.09 with the euro down 0.07% to $1.1654.

The yen also gave back some of the previous day’s gains, weakening 0.06% against the greenback to 158.7 per dollar. Sterling fell 0.04% to $1.3387.

The greenback sank to a one-month low on Wednesday following the announcement of a ceasefire in the Middle East conflict.

Still, the deal appeared to be on thin ice, as Israel continued its parallel war against Iran-linked militia Hezbollah in Lebanon, while Tehran accused both Israel and the US of violating the agreement and said it would be “unreasonable” to proceed with peace talks.

The Strait of Hormuz also remained closed to vessels sailing without permits, and shippers said they needed more clarification before resuming transit.

Any signs of a truce breaking down, whether from renewed sanctions in the Straits or regional conflicts like Lebanon, could push oil prices higher again, strengthen the US dollar and weigh on risk assets, said Daniela Hathorne, senior market analyst at Capital.com.

The dollar has been the main beneficiary in the Iran war between currencies, as the US is a net energy exporter and therefore less exposed to the economic blow that oil importers such as Japan and many European countries could face.

The five-week war has shaken investor confidence, causing the biggest disruption on record to global oil and gas supplies.

Analysts say the uneasy truce leaves Iran with more leverage over shipping through the vital strait than before the conflict, after President Donald Trump backed off his threats to attack Iran’s civilian infrastructure.

The US is set to release February’s personal spending and PCE deflators on Thursday. The dollar-yen pair may remain range-bound in Tokyo trading, despite improved sentiment following the ceasefire agreement, although strong US data could trigger a recovery in the dollar, Akihiko Yoku, senior analyst at Mitsubishi UFJ Bank, said in a note.

Bank of Japan Governor Kazuo Ueda is expected to appear in parliament from 0415 GMT on Thursday.

The Australian dollar weakened 0.13% against the greenback at $0.7034. New Zealand’s kiwi fell 0.02% to $0.5821 against the greenback.

Among cryptocurrencies, Bitcoin fell 0.50% to $71,018.20. Ethereum fell 0.96% to $2,188.86. (Reporting by Satoshi Sugiyama Editing by Mr. Navaratnam)