US dollar near multi-week lows as markets await Middle East progress

The US dollar was relatively stable near multi-week lows on Thursday, as markets await the next steps in the diplomatic process in the Middle East.

Hopes that a deal between the US and Iran could be near reduced demand for safe-haven assets and limited support for the currency.

However, uncertainty remains, while a proposed agreement between Oman and Iran could leave the latter in control of traffic in the Strait of Hormuz.

Any major diplomatic breakthrough and improvement in shipping conditions could ease upside pressure on oil prices and limit inflation concerns. The latter could weigh on Treasury yields and the dollar.

On the monetary policy front, expectations continue to diverge. Markets still anticipate an interest rate increase at the Federal Reserve’s next meeting, which would support yields and the currency. However, the probability of a hold continued to increase, reaching 45%, limiting support for the dollar and yields.

Attention is turning to today’s jobless claims figures and tomorrow’s non-farm payroll report, which could influence monetary policy expectations. Softer data could further support a less hawkish outlook.