Dollar Added To Losses Last Week Amid Reports Of A U.S.-Iran Deal

(RTTNews) - The U.S. dollar declined against major currencies during the week ended May 29 amidst reports of a tentative deal between the U.S. and Iran that lifted global risk sentiment.

Peace hopes suppressed safe haven demand triggered by the exchange of fire and fresh hostilities between the two countries earlier in the week. Risk appetite improved on Friday, dragging down the dollar, as the deal was expected to allow the opening of the Strait of Hormuz, the start of nuclear talks as well as an extension of the ceasefire by 60 days.

During the week ended May 29, the U.S. dollar inter alia declined against the euro, the British pound, the Australian dollar, the Swedish krona, the Canadian dollar as well as the Swiss franc. It however held its ground against the Japanese yen. As a result, the Dollar Index which measures the Dollar's strength against a basket of 6 currencies dropped more than a quarter percent on a weekly basis, extending losses from the previous week. Here is a quick recap of the dollar's trajectory during the week ended May 29.

During the past week, the Dollar Index traded between the weekly high of 99.54 recorded on Thursday and the weekly low of 98.75 recorded on Friday. The index eventually closed the week's trading at 98.91, implying a decline of 0.33 percent from the level of 99.24 on May 22. The dollar declined during the week despite persisting inflationary pressures, as revealed by the sticky PCE-based inflation readings released during the week.

Data released by the U.S. Bureau of Economic Analysis on Thursday morning showed the core PCE price index rising by 3.3 percent year-on-year. The inflation reading increased from 3.2 percent in March but matched market expectations. The Fed's preferred gauge of underlying inflation in the U.S. economy however remained well above the Federal Reserve's 2 percent target, instilling fears of a hawkish monetary policy response by the Federal Reserve.

The sharp decline in crude oil prices during the week and a potential softening in the Fed's monetary policy outlook also abetted the dollar's retreat. Brent crude futures for August settlement closed trading at $92.05 on Friday versus $100.21 a week earlier. WTI crude futures for July settlement slipped to $87.36 on May 29, from $96.60 on May 22.

Boosted by the U.S. dollar's weakness and renewed expectations of a rate hike by the European Central Bank in June, the EUR/USD pair jumped 0.49 percent during the week ended May 29. From the weekly low of 1.1586 touched on Thursday, the pair climbed to a high of 1.1687 on Friday. The pair eventually closed the week at 1.1660, versus 1.1603 a week earlier.

The British pound rallied 0.23 percent against the greenback during the week ended May 29. The GBP/USD pair which had closed at 1.3430 on May 22, closed trading for the week ended May 29 at 1.3461. The weekly trading range was wider, between a high of 1.3514 recorded on Tuesday and a low of 1.3366 recorded on Thursday as markets digested the rising political uncertainty and moderated rate hike expectations from the Bank of England.

The Australian Dollar jumped 0.80 percent against the U.S. Dollar during the past week amidst reports of a preliminary deal between the U.S. and Iran. The AUD/USD pair rallied from the level of 0.7127 recorded on May 22 to close the week ended May 29 at 0.7184. During the week, the pair oscillated between a low of 0.7097 recorded on Thursday and the high of 0.7202 recorded on Friday even as markets lowered rate hike expectations from the Reserve Bank of Australia in the backdrop of softer-than-expected inflation readings.

The U.S. Dollar however edged up against the Japanese Yen during the week ended May 29 amidst warnings from the Japanese government of intervention in the currency market. The USD/JPY pair closed the week at 159.27 versus 159.20 a week earlier, registering a gain of 0.04 percent. During the week, the pair oscillated between the low of 158.76 recorded on Monday and the high of 159.67 recorded on Thursday. Currency markets remain under the influence of geopolitical developments as tensions in the Middle East stay elevated. With the U.S.-Iran ceasefire extension remaining elusive and efforts to reopen the Strait of Hormuz showing little progress, global oil prices have jumped, and the safe haven U.S. dollar has strengthened. The six-currency Dollar Index is trading near the day's high of 99.11 on Monday, implying an overnight addition of 0.20 percent from Friday's closing level of 98.91.

The EUR/USD pair is currently trading 0.21 percent lower at 1.1635 versus 1.1660 on Friday. The GBP/USD pair is currently trading at 1.3451 versus 1.3461 on Friday, implying losses of 0.07 percent. Ahead of key domestic data releases, the AUD/USD pair is currently trading 0.39 percent lower at 0.7156 versus 0.7184 on Friday. Amidst the dollar's rebound, the USD/JPY pair is now at 159.61, as compared with the level of 159.27 recorded at the end of the previous week.