The US dollar stabilized during Asian trading on Friday, recovering from a sharp late-session reversal, as investors juggled hopes of a Middle East ceasefire and an uncertain trajectory for American interest rates. The greenback edged up to about 160.07 yen, while commodity-linked currencies like the Australian and New Zealand dollars gave back some overnight gains. Sterling was little changed near $1.34, and the euro held close to a one-week high at $1.1576, bolstered by the European Central Bank’s first rate increase since 2023.
ECB shift supports the euro
The ECB’s 25-basis-point rate hike sharpened the contrast between a hawkish eurozone stance and a Federal Reserve outlook still sensitive to incoming inflation figures. Policymakers sounded cautious on price pressures, with high energy costs and sluggish growth complicating the bloc’s outlook. Markets are now pricing in another ECB move as early as September, though officials offered scant guidance on the timing of any follow-up increase.
Iran peace hopes and oil prices
Foreign-exchange markets pivoted late in the US session after President Donald Trump cancelled planned strikes on Iran and said a peace agreement could be signed as soon as this weekend. The prospect of a deal reopening the Strait of Hormuz pushed oil prices lower, easing some of the inflation premium that had built into global markets. However, Iran has stated it has not reached a final decision, keeping traders cautious. A confirmed deal could further reduce energy-cost risks, but any breakdown in talks would rapidly restore geopolitical stress to currency trading.
US PPI data and inflation fears
US producer-price data added another layer to the dollar debate. Headline PPI rose more than expected in May, recording the strongest annual gain in three and a half years as energy costs climbed. Yet core PPI, which feeds into the Fed’s preferred inflation gauge, came in below forecasts, limiting concerns of more aggressive tightening. Markets are still pricing in a Fed rate increase later this year, though expectations have shifted with retreating oil prices and cooling inflation fears. The next few weeks of energy and price data will be crucial in determining whether the Fed can wait or must tighten again.
Canadian dollar under pressure
The Canadian dollar softened against its US counterpart, with the USD/CAD pair rising to a two-week high near 1.3450. Stronger-than-expected US PPI data reinforced the diverging policy paths of the Federal Reserve and the dovish Bank of Canada, which recently held rates at 4.50% amid a slowing domestic economy. Lingering uncertainty around the US-Iran peace talks removed a key support for the loonie, as Canada, a major oil exporter, remains highly sensitive to crude price swings. Until a deal is finalised or oil rallies decisively, the Canadian dollar is likely to stay under pressure.
