- Rumors of talks between Iran and the United States sent the dollar down, but not for long.
- The strength of the Australian economy did not help the AUDUSD.
On Wednesday afternoon, a New York Times report on Tehran's contacts with the CIA in connection with the negotiations sparked the fastest increase in a month. There is no smoke without fire, and traders should consider the risks of an earlier end to the conflict in the Middle East. However, the US dollar soon resumed its offensive after Iran denied these reports. Iran has become less homogeneous after the death of many representatives of the ruling elite. Even more conflicting signals are emerging regarding the Strait of Hormuz blockade, increasing volatility in oil and stock markets.As for the duration of the conflict, Donald Trump's administration is guiding markets toward a 4-5 week timeline. However, investors prefer to play it safe and are using the 2022 model, even though the prolonged conflict between Russia and Ukraine disrupted oil and gas supplies to Europe. This drove up global prices and caused inflation to rise, including in the United States, triggering an aggressive 40-year cycle of rate hikes and strengthening the U.S. dollar against major currencies.
It is currently in a rate cut cycle, but has been on pause since December. However, the very act of extending the pause in policy easing favors EURUSD bears, given the wide yield spread between US and German bonds.
This is especially true given growing signs of strength in the US economy. Data released by ADP showed private sector employment growth of 63,000, the best result since July and above the forecast of 50,000. The ISM Services Purchasing Managers' Index jumped to 56.1, its highest level since August 2022.
Attempts by dollar competitors to launch a counteroffensive were nipped in the bud. The Australian dollar was not helped by GDP growth of 2.6% in 2025, the fastest in three years. Investors believed this statistic was already priced in, and the chances of the RBA raising rates in March fell from 37% to 20%.
In Japan, the central bank chief's statements about his willingness to continue raising rates boosted the yen. However, Kazuo Ueda recognized that the armed conflict in the Middle East is negatively impacting the national economy due to the increase in oil and gas prices, which have played into the hands of buyers in the medium term. As a result, it returned to its daily high of 157.4, which is not far from the upper limit of the trading range of the past two years.
The pound remains under pressure not only against the dollar but also due to geopolitical factors. The risks of political instability, amid the defeat of the Labor Party in the local elections, weigh.
He FxPro Analyst team
