Dollar strengthens as confidence recovers, Fed hike bets trimmed

The dollar held on to gains at the start of Asian trading on Thursday as investors sought clarity on whether a de-escalation in the U.S.-Israeli conflict with Iran was imminent and trimmed bets that the Federal Reserve's next move may be a hike.

Against the yen, the U.S. dollar was flat at 159.41 yen, holding near its strongest levels since 2024. The Australian dollar was down ‌0.1% at $0.6943, ⁠while the ⁠New Zealand dollar was steady at $0.5806. Iran's foreign minister said on Wednesday the country is reviewing a U.S. proposal to end the war in the Gulf but has no intention of holding talks to end the widening Middle East conflict. With geopolitical uncertainty still elevated, the U.S. dollar index, which measures the greenback's strength against a basket of six currencies, rose 0.5% to 99.641, its biggest one-day gain in a week.

"Markets remain decisively headline driven, with a square focus on ⁠weighing up ‌whether recent news marks a genuine de-escalation attempt, or a precursor to a new kinetic equilibrium," analysts from Westpac wrote in a research report. After the closure ⁠of the Strait of Hormuz caused energy prices to spike, traders are questioning earlier inflation expectations and growing more confident that the Federal Reserve will keep policy settings on hold throughout the year. Fed funds futures are pricing an implied 70.6% probability that the U.S. central bank will remain on hold at its meeting in December, compared to a 60.2% chance a day earlier, according to the CME Group's FedWatch tool. Against the Chinese yuan, the U.S. dollar was flat at 6.9026 yuan in offshore trade ‌after U.S. President Donald Trump said he will meet Chinese President Xi Jinping on May 14-15 during his first visit to China in eight years following a delay during the war with Iran. The ⁠euro was flat at $1.1560, stabilising after two days of decline following comments from European Central Bank President Christine Lagarde on Wednesday which opened the door to raising interest rates in the euro zone if war in the Middle East pushes up euro zone inflation for some time. The British pound was steady at $1.3365, attempting to avert its third consecutive down day after data released on Wednesday showed consumer price inflation held at 3.0% in February, unchanged from January's rate but still above target.


In cryptocurrencies, bitcoin was up 0.4% at $71,247.25 while ether nudged up 0.2% to $2,170.88.