The US Dollar performed steadily on Friday, supported by safe-haven demand due to escalating geopolitical tensions in the Middle East. However, the greenback remained on track to post a weekly decline after subdued US inflation data prompted markets to reduce bets on a Federal Reserve (Fed) interest rate hike in the near future.
The escalating armed conflict between Iran and the United States has reportedly undermined a ceasefire agreement signed last month. The escalating geopolitical crisis has not only prompted investors to turn to the dollar as a safe-haven asset, but has also pushed global crude oil prices near a one-month high.
In European currency markets, the Euro fell marginally to $1.143 but maintained its weekly gain forecast of 0.2%. Meanwhile, Sterling fell 0.3% to $1.344 despite positive market expectations for political stability in the United Kingdom ahead of Andy Burnham's inauguration as the new Prime Minister on Monday.
In Asia, the Japanese Yen was trading flat at 162.33 per US dollar, near a 40-year low. This put markets on alert following repeated statements from Japanese Finance Minister Satsuki Katayama, who stressed Tokyo's readiness to implement drastic market interventions.
Based on current economic indicators, the CME FedWatch tool showed the probability of a Fed rate hike in July has now fallen sharply to 11% from 25% the previous week. Economists expect the US central bank to keep interest rates on hold at its next meeting on the strength of domestic retail and labor market data.
