Investing.com — The U.S. dollar on Friday almost entirely gave back all of the gains it has made since the start of the Iran war, as the recent safe-haven appeal of the currency was dented after the country announced that the critical Strait of Hormuz was ’completely open’.
The , which measures the greenback against six major peers, was little changed at 98.21 at 17:00 ET (21:00 GMT), paring back some losses. It had earlier dropped to a session low of 97.63, at that point nearly erasing all of its war-sparked gains after the U.S.-Iran conflict boosted its appeal as a safe haven.
The opening of the strait, though temporary, came as a major relief to market participants across asset classes, as the effective closure of the vital waterway had resulted in heightened volatility and stress across global markets.
“In line with the ceasefire in Lebanon, the passage for all commercial vessels through Strait of Hormuz is declared completely open for the remaining period of ceasefire,” Iran’s foreign minister Abbas Araghchi said on X, a day after Israel and Lebanon agreed to a 10-day ceasefire.
President Donald Trump noted the decision on social media, saying that the strait was now “FULLY OPEN AND READY FOR FULL PASSAGE.” The president in a follow-up post clarified that while the strait was open, the U.S. blockade on vessels entering and exiting Iranian ports would remain in force.
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“As far as the U.S. dollar is concerned as we see risk back off of tensions in the Middle East, the safety move to the US dollar is being reversed,” Dennis Kissler, Senior Vice President of the Trading Division at BOK Financial said.
The dollar was hovering just above pre-war levels this week, after retreating from a rally throughout March and early April which was fueled by investors seeking a bastion during the Iran war. Underpinning the dollar’s allure was the view that the U.S., as a major energy exporter, was relatively immune from oil shocks stemming from the effective closure of the Strait of Hormuz, a key shipping chokepoint off of Iran’s southern coast.
As a result, upbeat rhetoric around the trajectory of peace talks has partially weighed on the dollar, with the currency on track for a second consecutive weekly drop.
The U.S. and Iran are negotiating a three-page plan to end the war as it approaches the 50-day mark, with discussions centered on the U.S. releasing $20 billion in frozen Iranian funds in exchange for Iran surrendering its stockpile of enriched uranium, according to Axios. But Trump later in a phone interview with Bloomberg News said Iran had agreed to suspend its nuclear program indefinitely and will not receive any frozen funds from the U.S.
Trump on Thursday said U.S. and Iranian negotiators would likely meet this weekend for a second round of talks.
Traders are keeping tabs on inflation concerns, which have been elevated after the outbreak of the war in late February induced an historic surge in oil prices. How central banks around the world react to potential price pressures remains a crucial source of debate.
Amid this backdrop, the euro inched down against the dollar by 0.1% to $1.1766.
“We retain a preference not to chase EUR/USD rallies above 1.180 until there is greater clarity on a Middle East peace plan and a new regime for the Strait of Hormuz,” analysts at ING said in a note.
Meanwhile, the British pound was little changed at $1.3521. On Thursday, sterling came under pressure, as analysts highlighted news reports that the U.K. government had overruled a failed vetting of former ambassador to the U.S. Peter Mandelson. Questions swirled around whether the matter would lead to the resignation of U.K. Prime Minister Keir Starmer, an outcome which the ING analysts argued would be “GBP-negative given a perception that a leadership change could herald additional borrowing and changes to the fiscal rules.”
Still, the euro and the pound are now near their highest levels in seven weeks, having bounced back from steep losses sparked by the fighting in the Middle East.
In Asia, the Australian dollar, a proxy for risk sentiment, was floating around almost four-year highs. The yen’s pair with the dollar was slightly lower, as traders eyed comments from Bank of Japan Governor Kazuo Ueda which appeared to steer clear of signaling an April rate hike.
Scott Kanowsky, Ambar Warrick, and Anuron Mitra contributed to this article
