By Karen Brettell and Sophie Kiderlin
NEW YORK/LONDON, June 15 (Reuters) – The U.S. dollar fell broadly on Monday, hitting a 10-day low against the euro and sterling, after a preliminary agreement to end the U.S.-Iran war pushed oil prices and Treasury yields lower while boosting risk sentiment.
U.S. and Iranian officials said on Sunday they had agreed on a framework for a deal to end their war and reopen the Strait of Hormuz, with the memorandum of understanding scheduled to be officially signed on Friday in Switzerland.
“It’s not just that the U.S. says there is an agreement, the Iranians also do. And the markets want to believe it,” said Marc Chandler, chief market strategist at Bannockburn Global Forex.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.34% to 99.46, with the euro up 0.41% at $1.1616, its highest since June 5.
Sterling strengthened 0.22% to $1.3435.
Nick Rees, head of macro research at Monex Europe, said that despite the preliminary deal, markets would likely be cautious about pricing in further optimism.
“There’s plenty of room to be disappointed here,” he said. “Crucially, we haven’t heard anything on the nuclear side. If that comes through over the next few days, then I think we can be a bit more constructive.”
The Japanese yen strengthened 0.07% against the greenback to 160.09 per dollar but held near levels seen as potentially prompting official intervention. In cryptocurrencies, bitcoin gained 4.46% to $66,815.
CENTRAL BANKS IN FOCUS
Major central banks, including the Federal Reserve, the Bank of Japan, the Bank of England and the Reserve Bank of Australia, will deliver rate decisions this week. Markets focused on whether prospects for a peace deal will ease their inflation concerns and influence the current tightening trajectory.
The Fed is widely expected to hold rates in the current range of 3.5%-3.75% on Wednesday, but it may drop its easing bias. Traders will also watch for how hawkish a tone new Fed Chair Kevin Warsh strikes at the press conference following the statement.
Investors are pricing in 53% odds of a hike by December as the labor market improves and inflation stays above the Fed’s 2% annual target.
The Bank of Japan is set to raise interest rates to 1%, a 31-year high, at its two-day meeting concluding on Tuesday. It is also expected to signal readiness to keep pushing up borrowing costs to combat inflation risks despite the peace deal.
“The rate hike probably will not do much for dollar/yen directly since it’s already discounted,” said Chandler, though he added that it could make an intervention more likely if the yen continues to weaken.