US President Donald Trump said he would make a final decision on Friday on a deal to prolong the truce with Iran.
The proposed agreement would extend the ceasefire by 60 days and allow traffic to resume through the strategic waterway while negotiators work through contentious issues, including Iran’s nuclear programme, four sources told Reuters.
The greenback had initially rallied at the onset of the conflict, buoyed by safe-haven demand and the US economy’s relatively limited exposure to energy-driven inflation.
However, it has since surrendered some of those gains as uncertainty surrounding the conflict’s trajectory has weighed on investor sentiment.
The euro was up 0.12% at US$1.16620 and was on track for a weekly gain.
The pound sterling was up 0.18% against the dollar at US$1.3466, marking the second straight week of gains.
“We don’t have answers about a lot of things and it’s creating a divergence or lack of consensus or complete narrative especially for central banks,” said Juan Perez, director of trading at Monex USA in Washington.
“That’s why you’re seeing that reflected in the lack of movement in the US dollar overall,” Perez said.
The dollar index, which measures the greenback against a basket of currencies, was flat at 98.92, on track to notch a weekly loss.
Data on Thursday showed US inflation rising at its fastest pace in three years in April, driven by higher energy prices due to the Iran war and cementing economists’ views that the Federal Reserve will hold interest rates unchanged well into next year.
“Equities are ignoring any issues about economic disruption and you’re getting pretty much the same type of stasis in the currencies because if you look at the potential for rate increases, according to the CME and futures, it’s all on the side of rate increases,” said Joseph Trevisani, senior analyst at FXStreet.
“There’s nothing in the horizon but potential rate increases. Yet you’re not seeing higher dollar rates,” Trevisani said.
Yen intervention watch
The Japanese yen traded at ¥159.27 per dollar, remaining near the traditionally significant 160 level that has historically prompted interventions by Japanese authorities.
Japan’s finance ministry confirmed on Friday that the government spent ¥11.7 trillion (US$73.5 billion) intervening in currency markets over the past month to support the yen, confirming what traders had widely suspected.
The Australian dollar was up 0.31% at US$0.71840.
The kiwi rose nearly 0.85% to US$0.5985 after hitting its strongest level in more than three months, extending a recent rally after the Reserve Bank of New Zealand suggested rate hikes were likely.