By Tom Westbrook
SINGAPORE, April 10 (Reuters) – The dollar headed on Friday for its largest weekly drop since January, as investors sold safe assets on optimism that oil shipping will resume if a ceasefire holds in the Gulf.
The dollar had towered in March as one of the few bastions of safety as the U.S. and Israeli war on Iran sent oil prices rocketing and hit stocks and gold, while inflation worries sank bonds.
But since a shaky ceasefire was agreed on Tuesday those positions are being unwound.
The euro has rallied through its 200-day moving average this week to trade at $1.1694, a break of chart resistance that opens the way to further gains.
The risk-sensitive Australian and New Zealand dollars are looking at weekly rises of nearly 3% on the dollar, with the Aussie trading just above 70 cents and the kiwi at $0.5847. Sterling has shot up 1.8% this week and above its 200-day moving average to $1.3424.
Moves in the Asia session were small on Friday. U.S. inflation data is due later in the day, though markets’ direction is more is likely to hang on the outcome of weekend talks between the U.S. and Iran in Islamabad.
“People were buying the U.S. dollar when the war was at its most intense moment and now they’re selling as the tail risk of a really bad outcome has faded quite a bit,” said Jason Wong, senior strategist at BNZ in Wellington.
“Even though it still looks a bit shaky, the ceasefire removing that tail risk is important from a sentiment point of view,” he said, though noting that could turn around very quickly if anticipated weekend peace talks don’t yield progress.
The yen, under pressure for years from Japan’s low rates and more recently from its vulnerability to high oil prices, lifted off lows against the dollar – but not far and was sold against other currencies, suggesting it remains unloved.
The yen eased very slightly to 159.2 per dollar on Friday. The U.S. dollar index was steady and 1.3% lower so far this week.
YUAN RALLIES
In the Strait of Hormuz there was little sign of progress. In the first 24 hours of the ceasefire, just a single oil products tanker and five dry bulk carriers sailed through a passage which before the war accommodated about 140 ships a day.
Iranian officials arrived in Islamabad on Thursday and a U.S. delegation, led by Vice President JD Vance, arrives on Friday to discuss what investors hope can be a lasting peace.
“If there’s positive talks, that would be dollar negative. And if we get to Monday and talks went badly and there’s still a lack of ships … things could turn around quickly,” said Wong.
South Korea’s central bank kept its policy interest rate steady on Friday, as expected, leaving the won at 1,480 to the dollar, having recovered from beyond 1,500.
China’s yuan – which has never really fallen since the war began at the end of February – was set for its biggest weekly rise in 15 months and is trading at its strongest levels since 2023.
Data on Friday showed factory gate prices rising for the first time in three years, a sign that genuine inflation may be beginning to take hold after a long battle with deflation.
“The CNY has been a surprising winner of the Iran war, despite China’s role as the largest oil importer in the world,” said ING economist Lynn Song.
“At least a few market participants have mentioned re-evaluating the ‘China risk premium’ amid rising global uncertainty elsewhere, which has led to China looking more and more like the adult in the room.”
(Reporting by Tom Westbrook; Editing by Edwina Gibbs and Kim Coghill)
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