The dollar is near the lowest level in 10 days, and the yen ignores the interest rate hike economy

The dollar stabilized on Tuesday near its lowest level in 10 days, driven by improved investor appetite for risk following the announcement of a preliminary agreement between the United States and Iran to end the war in the Middle East, while the Japanese yen continued to move near the 160 yen level against the dollar despite the Bank of Japan raising interest rates to their highest levels in more than 3 decades.

US President Donald Trump said that an initial agreement was signed between Washington and Tehran to end the war, without revealing its details, which was welcomed by global markets and contributed to the decline in oil prices and the decline of some supply concerns.

In light of these developments, investors are awaiting an expected series of central bank meetings this week, including the US Federal Reserve and the Bank of England, to assess whether the end of the conflict will contribute to easing inflationary pressures or whether its effects will continue in the near term.

The Central Bank of Japan raised interest rates today to the highest level in 31 years, in a move that was widely expected with the aim of reducing the risks of inflation resulting from the repercussions of the war. However, the decision did not give the Japanese currency significant support, as the yen stabilized at 160.23 against the dollar, continuing to move near the level that raises market fears of new government intervention to support the currency.

Analysts pointed out that the result of the vote within the Bank of Japan, which came by 7 votes to one, reflected a difference in visions regarding the timing of any additional interest increases in the future.

In other currency markets:

• The Australian dollar fell 0.3% to 0.705 US dollars after the Reserve Bank of Australia decided to keep interest rates unchanged, despite continuing inflationary pressures, following 3 successive interest increases.
• The euro settled at $1.159, approaching its highest level in 10 days, recorded yesterday, Monday, at $1.1622.
• The British pound reached $1.3413.

Sharp fluctuations

The dollar index, which measures the performance of the US currency against a basket of 6 major currencies, recorded a level of 99.66 points, after rising by about 2% since the outbreak of the war last February, amid sharp fluctuations linked to developments in the conflict in the Middle East and the ceasefire issue.

The US-Iranian agreement, according to preliminary indications, would extend the fragile ceasefire for an additional 60 days, and open the way for the reopening of the Strait of Hormuz, in which navigation traffic has been severely affected during the past months.

“While energy markets moved quickly to assess the immediate risks posed by a prolonged supply outage, the path back to normal flows is still far from easy,” said IG market analyst Tony Sycamore.

He added that the uncertainty regarding the restoration of supply chains to normal will keep investors in a state of anticipation, at a time when the expectations for inflation and interest rates are still unclear.

In turn, ING analysts said that the markets’ reaction was faster than the actual developments on the ground, indicating that trading trends during the coming period will remain dependent on the extent of progress towards a final agreement between the United States and Iran and the practical steps to implement it.