The US dollar retreated for another session on Friday, dragged lower by a broad decline in Treasury yields and expectations that peace talks between the US and Iran could resume.
Diplomatic hopes helped stabilise oil prices after the latest escalations in the Middle East, which could weigh on the currency and yields.
However, markets are still anticipating an interest rate hike by year-end and another next year, which could keep yields at elevated levels and support the currency.
Monetary policy expectations could continue to adjust as rapidly changing geopolitical conditions in the Middle East affect the inflation outlook.
Separately, weekly jobless claims fell below expectations, pointing to near-term labour resilience. The job market’s strength could leave the Federal Reserve focused on its inflation mandate, supporting tightening expectations.
At the same time, the greenback retreated against the yen amid reports of Japan’s plans to encourage pension funds to increase their domestic asset holdings. The move could offer support to the Japanese currency against its US counterpart.
Looking ahead, the focus could remain on geopolitical developments and the reaction in energy markets, which could shape the path for yields and the dollar.
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