TLDR
- The dollar rose to near six-week highs after conflicting signals over a U.S.-Iran peace deal
- Secretary of State Marco Rubio said there were “some good signs” in talks, but Washington and Tehran remain apart on key issues
- Strong U.S. economic data — falling jobless claims and a four-year high in manufacturing — supported the dollar
- The Japanese yen fell past 159 per dollar, giving back most of its gains from recent suspected intervention by Tokyo
- Emerging market currencies, including the Turkish lira and Indonesian rupiah, came under heavy pressure
The U.S. dollar held near a six-week high on Friday as conflicting signals from U.S.-Iran peace talks kept currency markets volatile.
Washington and Tehran remained at odds over Iran’s uranium stockpile and control of the Strait of Hormuz. However, U.S. Secretary of State Marco Rubio said there had been “some good signs” in the negotiations.
The dollar index rose 0.17% to 99.37, close to its recent peak of 99.515 — its highest level since April 7.
The euro fell 0.2% on the day to $1.1594 and was on track for a second straight weekly loss. The British pound dipped slightly to $1.342, brushing off data showing UK retail sales dropped by their most in nearly a year in April.
Strong U.S. economic data added to dollar support. Weekly jobless claims fell last week, and U.S. manufacturing activity climbed to a four-year high in May.
Tony Sycamore, a market analyst at IG, said the conflict is no closer to resolution. “I still feel like the risks are for the U.S. dollar to go higher, because I really just don’t see a way out of this situation in the Middle East without them sort of needing to be more forceful,” he said.
Japanese Yen Struggles Despite Intervention
The yen slipped further past 159 per dollar on Friday, sitting 0.1% lower at 159.09. The currency has now given back nearly 75% of its gains from a suspected recent intervention by Japanese authorities.
Matthew Ryan, head of market strategy at Ebury, said the risk of further intervention is rising. “Officials have indicated that there is no real limit as to how much, or how often, they can step in to protect the currency,” he said.
Japan’s core inflation slowed to a four-year low in April, which complicates the Bank of Japan’s path on interest rates. The BOJ is expected to raise rates only gradually, while other central banks like the European Central Bank are likely to move faster — putting the yen at a disadvantage.
On a trade-weighted basis, the yen is at record lows. That helps Japanese exporters but worsens the energy cost shock, as Japan relies heavily on imported goods.
Emerging Markets Feel the Strain
Currencies across emerging Asia came under pressure this week due to the surge in global oil prices.
Indonesia announced that all exporters of natural resources must store 100% of their export revenues in state-owned banks starting June 1. The move was aimed at boosting onshore dollar supply and stabilizing the rupiah.
Nigel Foo, head of Asian fixed income at First Sentier Investors, said the rupiah had been “under tremendous pressure.” He added that Indonesia’s economic fundamentals had “clearly been deteriorating.”
Turkey’s lira hit record lows against the dollar on Friday after a court ruling went against the country’s main opposition party.
Lee Hardman, currency strategist at MUFG, said the best outcome for the yen — and many other currencies — would be a quick resolution to the Iran conflict. “Even if it just got back down into the mid 150s, that would probably be the best they can hope for right now,” he said.
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