Dollar Set for Second Straight Weekly Fall despite US-Iran Clashes

The dollar was down and heading for a second straight weekly fall on Friday as investors stayed cautiously optimistic about a swift end to the Middle East conflict, after President Donald Trump said the ceasefire remained in place despite renewed US-Iran hostilities. The two sides have occasionally exchanged fire since the ceasefire took effect on April 7, with Iran hitting targets in Gulf countries. Analysts flagged that oil prices were modestly higher, a fragile ceasefire broadly held and reports indicated that US-Iran talks were continuing, according to Reuters. They also noted that positioning has returned to historical averages and is no longer as supportive for the dollar as it was a few weeks ago. “The hope for risk bulls is still that China is adding pressure on the US to reach some kind of deal in the Gulf before the 14-15 May Trump-Xi summit,” said Francesco Pesole, forex strategist at ING. “The outlook is looking quite binary from here for the dollar, with the reaction in equities still likely to have a bigger bearing than oil volatility on the dollar,” he added. Stocks were down in Europe but US stock index futures rose on Friday as a recovery in chipmakers helped offset worries about renewed US-Iran tensions. The dollar index measured against key peers fell 0.28% at 97.96, after hitting 97.623 earlier this week, its lowest level since February 27, a day before the war started. It was set for a weekly drop of 0.22% after falling 0.31% the previous week. Investors flocked to the safe-haven dollar and sold currencies of oil-dependent economies such as Japan and the euro area after oil prices surged following Iran’s effective closure of the Strait of Hormuz. Markets are also bracing for the US non-farm payrolls report later on Friday, and it may take an outlier number, particularly a sufficiently weak one, to really move the dial on dollar volatility. “An unchanged unemployment rate and labour force participation rate are also expected, so the report should not alter the outlook for the Fed,” said Volkmar Baur, forex analyst at Commerzbank. The euro was up 0.35% at $1.1765, poised to end the week a touch firmer.