DBS Group Research economist Philip Wee notes that the US Dollar Index (DXY) is consolidating in a tight range as markets price optimism over a potential US-Iran peace deal and reopening of the Strait of Hormuz. Wee highlights that lower geopolitical risk premiums, falling Oil prices and softer US Treasury yields contrast with a cautious US Dollar, with policy focus turning to the June FOMC under Kevin Warsh.

Dollar trapped in narrow negotiation range

"The DXY Index’s tight consolidation between 98.9 and 99.5 best reflects the "on-again, off-again" volatility of the US-Iran negotiations."

"Nonetheless, the playbook indicates downward pressure on the greenback when hopes of a positive outcome emerge, and the USD catching a defensive bid when both sides disappoint."

"Financial markets continued to reflect optimism that a US-Iran peace deal will soon reopen the Strait of Hormuz, triggering a decline in geopolitical risk premiums across asset classes."

"We expect the Trump administration to look past today’s higher PCE inflation data."

"While the Fed is seen pivoting towards lower guidance, other major central banks are retaining clear communication and pragmatic policy execution to anchor inflation expectations."

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