MUFG’s Senior Currency Analyst Lee Hardman notes that the US Dollar index has quickly surrendered its early-week rebound, returning close to pre‑conflict levels as optimism grows over further US–Iran talks and Middle East deescalation. The Dollar and Japanese Yen have underperformed, while Scandinavian and commodity currencies have led G10 gains, raising downside risks to MUFG’s updated US Dollar forecasts.

Dollar slips as risk sentiment improves

"The US dollar’s rebound at the start of this week has proven short-lived with the dollar index quickly giving back those gains and more overnight as it moves back closer to pre-Middle East conflict levels."

"The further reversal of US dollar strength was triggered by fresh investor optimism that the US and Iran will continue to work towards a deal to bring an end to the conflict."

"In the foreign exchange market the best performing G10 currencies this month on the back of building investor optimism that the Middle East conflict will continue to deescalate have been the Scandi currencies of the Norwegian krone and Swedish krona closely followed by the commodity currencies of the New Zealand and Australian dollars while the US dollar and yen have both underperformed."

"The failure of the US dollar to strengthen further in response to the energy price shock is clearly a bearish development which is increasing downside risks to our updated forecasts."

"The latest developments have helped to bring the price of oil back below USD100/barrel and lifted global equity markets back closer to record highs."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)