The U.S. dollar is poised for its second consecutive weekly decline as easing geopolitical tensions reduce investor appetite for safe-haven assets. A ceasefire between Lebanon and Israel has taken effect, alongside prospects for new talks with Iran. U.S. and Iranian negotiators are reportedly seeking a temporary accord rather than a comprehensive peace deal, with the nuclear issue remaining a key obstacle.
Currencies saw rangebound trading in Asia. The euro held steady against the dollar, on track for a third weekly gain, while sterling also recovered losses. The dollar index, measuring the greenback against major peers, is on track for a second week of declines. Analysts suggest markets have already priced in ceasefire optimism, requiring new catalysts for directional moves.
The Australian dollar traded near four-year highs, supported by positive risk sentiment. The yen saw slight weakness against the dollar. Bank of Japan Governor Kazuo Ueda noted that decisions on interest rate hikes must consider the nation's low real interest rate.
Meanwhile, central banks remain cautious in addressing inflation risks. U.S. Treasury yields held steady after recent increases, with elevated oil prices contributing to persistent inflation concerns. Fed funds futures indicate market expectations for the Federal Reserve to maintain current interest rates this year.
Group of Seven finance ministers are prepared to act on economic and inflation risks stemming from Middle East conflict-related energy price and supply shocks. European Central Bank policymakers also downplayed immediate rate hike possibilities, emphasizing the need for further data.