Optimism Over Iran Peace Talks Pushes Dollar Down for Second Week

After hitting a speed bump earlier this week, the U.S. dollar faced ongoing pressure lately, dropping for the second consecutive week as growing optimism surrounding peace talks involving Iran and a ceasefire in the Middle East shifted market dynamics.

News of a 10-day ceasefire between Lebanon and Israel, coupled with comments from President Donald Trump hinting at upcoming U.S.-Iran discussions, helped pull investors away from traditional safe-haven currencies. The greenback's so-called haven appeal appears to be waning as fresh diplomatic moves suggest tension may ease.

Meanwhile, Asian trading sessions showed currencies largely confined to tight ranges, as traders awaited more concrete information. The euro hovered near $1.178, poised for its third week of gains, while the British pound steadied around $1.352, with both currencies recovering much of the ground they had lost amid the earlier Middle East uncertainties.

The dollar index, which tracks the greenback against a basket of six major currencies, remained steady near 98.235 but is on track to record back-to-back weekly declines. Most of the greenback's war-related gains have now reversed, reflecting a calmer global outlook as ceasefire hopes bolster risk appetite.

Sim Moh Siong, an FX strategist at OCBC, noted markets are in a pause phase, suggesting that much of the positive news has already been absorbed. ''We're waiting for fresh catalysts to stir a decisive move, as the path is no longer one-way for the dollar,'' he remarked.

Risk-linked currencies like the Australian dollar stayed close to their highest levels in four years, trading near $0.717, buoyed by improving market sentiment. The New Zealand dollar dipped slightly to just below $0.589, reflecting some caution amid broader calm.

In Japan, the dollar edged higher against the yen to 159.47. Bank of Japan Governor Kazuo Ueda abstained from signaling a rate hike this month, pushing expectations for policy tightening further back, likely not before June.

On the monetary policy front, central banks continue to tread carefully. Despite lingering inflation worries fueled by energy prices tied to the conflict, key players like the Federal Reserve and European Central Bank appear content with a cautious approach, opting to wait for more data rather than jump into action.

U.S. Treasury yields held firm, with the 10-year note yielding around 4.32%, while two-year yields hovered near 3.78%, as markets price in steady rates amid uncertainty about inflation's path in this evolving geopolitical backdrop.

With global financial authorities signaling readiness to counter any inflation or growth shocks stemming from these conflicts, traders are watching quietly, digesting the effects of tentative peace while weighing the dollar's next move.