NEW YORK: The dollar eased for a second straight day on Thursday as hopes for a de-escalation in the Iran-US war supported oil-exposed currencies, while Tokyo resumed its verbal intervention in support of the yen, making speculators cautious.
The United States and Iran are edging toward a limited, temporary agreement to halt their war, sources and officials have said, with a draft framework that would stop the fighting but leave the most contentious issues unresolved.
Reports of the possible progress have supported stock and bond markets globally since Wednesday, while weighing on the dollar against most major peers.
That momentum continued on Thursday, albeit in a more muted manner.
The euro was up 0.2 percent on the day at USD1.1755 after gaining 0.47 percent on Wednesday, while sterling was 0.2 percent higher at USD1.36255 after rallying 0.4 percent the previous day.
“A sense of cautious optimism has settled on financial markets in the aftermath of yesterday’s US-Iran headlines, lifting currencies with heavy energy import exposures and limiting safe-haven flows into the dollar,” said Karl Schamotta, chief market strategist at Corpay in Toronto.
Oil prices continued to show some hopes of de-escalation that could allow exports from the Gulf to resume.
Schamotta noted that the calm in markets could well prove fleeting.
“While the Trump administration is clearly motivated to find an off-ramp in the conflict, there’s little to suggest that negotiating positions have converged. More negative, and volatility-inducing headlines could land in the days and weeks to come,” he said.
The Japanese yen was about flat on the day at 156.36 per dollar, having appreciated sharply on Wednesday with speculation that Japanese authorities had again intervened in markets to buy their currency.
Japan may have spent as much as 5.01 trillion yen (USD32.06 billion) in its latest efforts to bolster its embattled currency, central bank data indicated on Thursday, signalling repeated bouts of intervention in markets.
Japan’s top currency diplomat, Atsushi Mimura, said separately on Thursday the country was not restricted on intervention.
US Treasury Secretary Scott Bessent will meet Japanese Prime Minister Sanae Takaichi next week, and the Nikkei newspaper said they would discuss curbing speculative yen selling, among other issues.
But analysts do not expect the yen to remain firm for long.
“Without stronger BOJ follow-through via consecutive hikes to address its behind-the-curve stance, the yen is likely to remain weak in the near term,” Masahiko Loo, senior fixed income strategist at State Street Investment Management, said.
Repeated interventions raise the likelihood of broader policy action in the June to July window, consistent with the late 2024 playbook, Loo added.
The US currency lost ground against a broad range of peers, including the Norwegian crown and the Australian dollar.
Norway’s crown strengthened after the central bank raised its policy rate to 4.25 percent from 4 percent and warned inflation was too high. The dollar hit a fresh four-year low and was last down 0.4 percent to 9.2587 crowns.
The risk-sensitive Australian dollar rose 0.2 percent and last fetched USD0.72516, just below the four-year high it touched on Wednesday.
The Swedish crown was about 0.4 percent stronger at 9.198 per dollar after Sweden’s Riksbank said the risk that the Middle East war would lead to higher inflation had increased somewhat, though it kept its policy rate unchanged at 1.75 percent, as expected.