Dollar Set for Second Weekly Drop as Euro Steadies Near Pre-War Levels Amid Ceasefire Optimism
LONDON/HONG KONG – The U.S. dollar is poised for a second consecutive weekly decline as of Friday, while the euro and British pound have stabilized around pre-war levels. This shift comes as investors unwind safe-haven positions, buoyed by optimism surrounding a ceasefire between Israel and Lebanon and the potential for renewed negotiations with Iran. A 10-day ceasefire between Lebanon and Israel commenced on Thursday, and U.S. President Donald Trump indicated that the next meeting between U.S. and Iranian officials could occur over the weekend. Negotiators from both nations have since adjusted their goals, moving away from a comprehensive peace deal to seek a temporary memorandum aimed at preventing further conflict, with the nuclear issue remaining a significant hurdle.
Dollar Index Declines Amid Ceasefire Optimism
The dollar index, which gauges the strength of the greenback against six major currencies, fell by 0.02% to 98.185. This decline marks a continuation of the trend seen over the past two weeks, as the dollar has relinquished most of the gains it achieved during the onset of the conflict. The optimism surrounding the ceasefire has contributed to a reduced demand for safe-haven assets.
Michalis Rousakis, a forex strategist at Bank of America, noted that the markets are exhibiting relative calm. He emphasized that the prospect of extending the ceasefire, or even establishing a permanent one, has influenced market sentiment. However, he maintained a bearish outlook for the dollar for the year, expressing skepticism about short-term movements.
Euro and Pound Recover Losses
The euro remained steady at $1.178225, on track for a third consecutive weekly gain. Rousakis pointed out that the euro-dollar exchange rate is currently at levels seen just before the Iran conflict, despite higher energy prices. He suggested that this indicates the markets may have overreacted.
Rousakis also mentioned that Bank of America’s commodity team anticipates that energy prices will normalize over time, although this process may take several months. He remarked that sustained high energy prices are inconsistent with the euro trading at 1.18.
The British pound held steady at $1.35225, even as Prime Minister Keir Starmer faced renewed calls for resignation following revelations that his former ambassador to the United States had failed security vetting yet was still appointed. Both the euro and pound have largely recovered from losses incurred during the Iran conflict, hovering near their highest levels in seven weeks. Against the yen, the dollar remained stable at 159.225. Bank of Japan Governor Kazuo Ueda refrained from indicating a potential rate hike this month, increasing the likelihood that the central bank will maintain its current stance at least until June. The Australian dollar traded at $0.71710, close to four-year highs, while the New Zealand dollar dipped approximately 0.1% to $0.5887.
Market Volatility and Future Risks
In a note released on Friday, Commerzbank FX analyst Michael Pfister observed that implied foreign exchange volatilities showed minimal signs of significant uncertainty, with a key measure returning to pre-war levels. He cautioned that even if the current conflict were to conclude, future crises could emerge. Pfister highlighted that U.S. President Trump has recently shifted his focus back to the Federal Reserve, suggesting that Cuba may be the next geopolitical target, alongside ongoing criticisms of NATO.
Central Banks Monitor Inflation Risks
Investors are closely watching how central banks will address inflationary pressures exacerbated by the war, with policymakers currently adopting a cautious approach. U.S. Treasury yields remained stable on Friday after rising in the previous session, as elevated oil prices continue to fuel inflation concerns. The two-year yield was last recorded at 3.7732%, while the benchmark 10-year yield held steady at 4.3054%. Fed funds futures indicate that markets are betting the Federal Reserve will maintain current interest rates throughout the year, a marked shift from earlier expectations of two rate cuts prior to the conflict.
French Finance Minister Roland Lescure stated that the Group of Seven finance ministers and central bank governors are prepared to act to mitigate economic and inflation risks stemming from the energy price and supply shocks caused by the Middle East conflict. This cautious sentiment was echoed by European Central Bank officials, who downplayed the likelihood of a rate hike in the near term, emphasizing the need for additional data and noting that the timing of any potential adjustments is of secondary importance.
New applications for U.S. unemployment benefits fell more than anticipated last week, indicating stable labor market conditions. This stability is perceived as providing the Federal Reserve with the flexibility to keep interest rates unchanged for the foreseeable future while monitoring the inflationary impacts of the ongoing conflict.
Source: www.zawya.com
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Published on 2026-04-17 14:18:00 • By the Editorial Desk
