NEW YORK: The US dollar edged higher on Tuesday on optimism that the US will reach a ceasefire deal in the war with Iran, while retail sales data for March pointed to a strong US economy.
The US military said on Tuesday it had seized a tanker linked to Iran in international waters, its latest apparent action to enforce a blockade, with time running out on a ceasefire and the prospect of last-ditch further peace talks still up in the air.
Traders remain positive that a deal will be reached with US Vice President JD Vance expected in Islamabad on Wednesday to hold talks to end the war.
“The market is taking a great deal of solace that both sides are travelling to Pakistan,” said Adam Button, chief currency analyst at investingLive.
The dollar also briefly bounced after US retail sales increased more than expected in March as the war with Iran boosted gasoline prices and led to a record surge in receipts at service stations, while tax refunds underpinned spending elsewhere.
“The data in the US is telling a consistent story of a decent acceleration,” said Button. “That’s been obscured by the war and it should be a US dollar tailwind because I find it hard to believe that we will go back to pricing in two cuts this year.”
Fed fund futures traders are currently pricing in only 36 percent odds of one 25-basis point cut this year.
Traders are also focused on Kevin Warsh’s testimony to the US Senate on Tuesday for signs of how he would guide monetary policy if he is appointed Federal Reserve Chair.
Warsh, US President Donald Trump’s nominee to lead the US central bank, will tell lawmakers that he is “committed to ensuring that the conduct of monetary policy remains strictly independent,” according to prepared remarks released on Monday.
Some traders and analysts, however, anticipate that Warsh may be less dovish than his comments indicate if he is appointed to the role.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, was last up 0.1 percent at 98.17, with the euro down 0.16 percent at USD1.1768.
Against the Japanese yen, the dollar strengthened 0.19 percent to 159.09.