Forex Markets Hold Their Breath as Iran Talks Go Quiet and the Fed Prepares to Speak
Tuesday morning in Asia was not the kind of session that produces much to write home about.
Quick overview
- Tuesday morning in Asia saw a steady dollar and tight trading ranges, reflecting a cautious mood in FX markets ahead of key events involving Iran and the Fed.
- Iran proposed a new offer through Pakistani mediators, linking the reopening of the Strait to the US lifting its naval blockade, but Washington remains resistant.
- The dollar index was slightly down at 98.32, supported by safe-haven demand, while the euro fluctuated around $1.1741 after earlier gains.
- The Fed is expected to maintain rates at 3.50% to 3.75%, with market focus on how the committee addresses the ongoing oil shock.
Tuesday morning in Asia was not the kind of session that produces much to write home about. The dollar was steady, ranges were tight, and the mood across FX markets reflected exactly what it was: a waiting room before two things that actually matter. Iran and the Fed.
The peace process has stalled again. Iran put a new offer on the table through Pakistani mediators, one that tied reopening the Strait to the US dropping its naval blockade, while asking for nuclear discussions to be handled separately and later. Washington was not buying it. Trump wants the nuclear file in the room from day one, and Commerzbank’s Thu Lan Nguyen pointed out that any arrangement leaving Iran’s nuclear programme untouched would be a hard thing for the president to defend politically back home. Markets that had rallied two weeks ago on ceasefire hopes came back down quickly when those hopes faded, and the pattern this time around has been more muted from the start. Nobody is rushing to price in a deal that keeps not materializing. Brent was sitting around $106 a barrel Tuesday morning with the Strait still closed.
The dollar index was near 98.32, down slightly on the day, still supported by the safe-haven demand that has been running underneath it since late February. The euro was at $1.1741, having recovered from $1.15 to around $1.18 during the brief ceasefire optimism earlier in April before settling back into its current range. ING’s Chris Turner suggested the Fed could lean toward keeping rates higher for longer given the energy shock, which he said would be a mild positive for the dollar.
The Fed decision later today is expected to be a hold, with the funds rate staying at 3.50% to 3.75%. TD Securities pushed its forecast for the first cut out to September. What markets are really listening for is how the committee frames the oil shock and whether Powell signals anything about his own plans. The Department of Justice dropped its investigation into Powell last week, which technically clears the path for Kevin Warsh’s confirmation as the next Fed chair. Whether Powell exits after May 15 or stays on as governor is still an open question.
The yen was at 159.63 ahead of the BOJ’s own decision, with intervention risk keeping a floor under it near the 160 level.
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