Dollar struggles to rebound as fragile US-Iran ceasefire keeps markets wary

By Hannah Lang

NEW YORK, April 9 (Reuters) – A fragile calm reigned across currency markets on Thursday as traders kept their eyes fixed on whether the ceasefire between the U.S. and Iran would hold, a day after its announcement sent the dollar tumbling across the board, setting it on track for its worst week since the conflict began in late February. 

The deal appeared to be on thin ice, as Israel bombed more targets in Lebanon, and there was no sign Iran had lifted its blockade of the Strait of Hormuz, which has caused the worst-ever disruption to global energy supplies.

Iranian negotiators were expected to set off later on Thursday for Pakistan for the first peace talks of the war, but Tehran said there would be no deal as long as Israel was striking Lebanon.

Israeli Prime Minister Benjamin Netanyahu said he was seeking direct talks with Beirut, with a “focus on disarming Hezbollah and establishing peaceful relations between Israel and Lebanon.”

President Donald Trump said all U.S. ships, aircraft, and military personnel would stay in place in and around Iran until it fully complied with the deal.

EURO, STERLING RISE

The euro was up 0.3% at $1.1698. It had gained 0.6% on Wednesday, but retreated late in the day, having touched a one-month high of $1.1721 earlier in the session.

Sterling similarly was 0.27% higher at $1.343, after gaining 0.77% on Wednesday, but retreating from as high as $1.348.

The Japanese yen lost ground, with the dollar up 0.27% at 159.02 yen, having briefly dropped below 158 on Wednesday.

With the Strait of Hormuz closed, “the entire ceasefire remains tenuous,” said Derek Halpenny, head of research, global markets EMEA at MUFG. But, he added, “while the U.S. dollar has rebounded, the moves in general have been modest.”

He said the fact talks scheduled in Pakistan were going ahead was keeping any retracement of Wednesday’s moves in check. 

Elsewhere, new personal spending data released on Thursday showed that U.S. inflation increased as expected in February and likely rose further in March amid the war with Iran, a trend that is expected to discourage the Federal Reserve from cutting interest rates for a while.

The Personal Consumption Expenditures price index ​climbed 0.4% after an unrevised 0.3% gain in January, the Commerce Department’s Bureau of Economic Analysis said ‌on Thursday.

Japan’s consumer confidence worsened in March for the first time in three months, a government survey showed on Thursday, adding to a recent string of data pointing to the potential economic hit from the Middle East war, which would complicate the Bank of Japan’s rate-hike decision. The yen showed little reaction to the data. 

Speaking in parliament, BOJ Governor Kazuo Ueda said real interest rates were clearly negative and were keeping the country’s financial conditions accommodative.

The Australian dollar was 0.49% higher at $0.7078, while the New Zealand dollar was 0.57% higher at $0.5855. In cryptocurrencies, bitcoin was last up 0.79% at $71,942.

(Reporting by Hannah Lang in New York and Alun John in London; Additional reporting by Satoshi Sugiyama in Tokyo Editing by Shri Navaratnam, Kim Coghill, Gareth Jones, Sharon Singleton, Rod Nickel)