Asian currencies and the U.S. dollar showed little net movement on Friday as market participants parsed reports indicating the U.S. and Iran had reached a draft framework to extend their current ceasefire for another 60 days. The U.S. Dollar Index was about 99 in Asian trading, after falling roughly 0.2% overnight, leaving it on track for a weekly decline. U.S. dollar futures also traded with minimal change.
Ceasefire reports temper risk sentiment
Later on Thursday investors responded to accounts that Washington and Tehran had agreed to a tentative plan to prolong the ceasefire while talks continue on Iran’s nuclear programme and regional security questions. The framework reportedly requires formal approval from U.S. President Donald Trump as well as confirmation from Iran.
That tentative agreement appeared to improve sentiment by raising the prospect of reduced tensions around the Strait of Hormuz, which in turn could ease pressure in energy markets and lift general risk appetite. Nonetheless, currencies across the region still traded within narrow bands as traders remained cautious about whether any extension will be long-lasting.
Regional FX moves
- The onshore Chinese yuan saw USD/CNY tick down about 0.1%.
- South Korea’s won bucked the regional pattern, with USD/KRW up roughly 0.5%.
- The Indian rupee strengthened modestly, with USD/INR down about 0.2%.
- Singapore’s dollar moved slightly weaker, as USD/SGD rose near 0.1%.
- The Australian dollar traded largely flat against the U.S. currency.
Tokyo inflation cools, influencing BOJ outlook
Japan’s currency was also subdued after national data showed Tokyo core consumer prices rose 1.3% year-on-year in May, slowing and staying beneath the Bank of Japan’s 2% inflation target for a fourth consecutive month. Headline Tokyo inflation eased to 0.7% year-on-year, while a measure excluding both fresh food and energy showed no monthly gain.
The softer inflation readings reinforced expectations that the BOJ is likely to advance monetary normalisation cautiously, which limits upward pressure on the yen despite stronger Japanese factory output data released earlier the same day.
U.S. inflation data and market implications
Market participants were also absorbing U.S. inflation figures from Thursday. The personal consumption expenditures price index - the Federal Reserve’s preferred inflation gauge - increased 3.8% year-on-year in April, its most rapid pace in about three years. That reading supported expectations that the Federal Reserve could keep interest rates higher for an extended period.
However, weaker U.S. growth data released alongside the inflation report helped restrain gains in Treasury yields and capped broader support for the dollar.
Overall, the combination of tentative diplomatic progress in the Middle East and mixed inflation signals at home and abroad left currency markets subdued, with traders maintaining a measured stance until more definitive developments emerge on both geopolitical and economic fronts.