Dollar gives up bulk of war gains as traders abandon bullish bets

{"text":[[{"start":7.6,"text":"Traders have abandoned their bets on a stronger dollar as hopes for an end to the Iran war erode its appeal as a haven currency and market attention switches to the possibility of interest rate cuts from the Federal Reserve."}],[{"start":20.5,"text":"The US currency, which surged in the early part of the conflict as global markets stumbled, is down 2.3 per cent from its late March peak against a basket of its peers and on course for its worst month since August. The euro has recovered almost all the losses it made in the conflict’s first weeks. "}],[{"start":39.05,"text":"Investors and strategists said hopes for peace had sapped the dollar’s earlier strength, which was partly based on the US’s relative insulation from the effects of a protracted global energy shock. At the same time, a recovery in risky assets has boosted emerging market currencies at the dollar’s expense."}],[{"start":null,"text":"

"}],[{"start":57.849999999999994,"text":"“It’s a de-escalation trade,” said Meera Chandan, co-head of global FX strategy at JPMorgan, which has revived some of its short-dollar recommendations favouring currencies including the Australian dollar."}],[{"start":70.5,"text":"“You’ve lost a bit of [the dollar’s] safe-haven bid that you saw at the start of the war,” she said."}],[{"start":76.75,"text":"Despite oil prices briefly touching $100 a barrel on Wednesday as uncertainty continues over the next stage of US-Iran talks, broader market volatility has come down significantly as investors view a negotiated resolution as the most likely outcome."}],[{"start":91.75,"text":"“Our base case remains that it is in the interest of both parties to come to a deal . . . despite hiccups,” said Mohit Kumar, chief European economist at Jefferies."}],[{"start":102.5,"text":"Traders have shifted away from bets on a stronger dollar. Three-month so-called risk reversals in the euro-dollar exchange rate — which show the relative costs of betting on the rate rising or falling — had swung strongly in favour of the dollar during the war but are back close to neutral. "}],[{"start":118.85,"text":"Investors have also refocused on the differing direction of monetary policy in the US and other big western economies. While the impact of higher energy prices is expected to lead to rate rises in Europe, investors are pricing in the possibility of a Fed cut this year."}],[{"start":135.6,"text":"That combination has dragged down the dollar, which has lost ground against every major currency except the Japanese yen so far in April, according to Bloomberg data. The South Korean won and South African rand, which were among the currencies hardest hit at the start of the conflict, are up more than 2 per cent."}],[{"start":null,"text":""}],[{"start":152.79999999999998,"text":"“The [emerging market] FX recovery clearly is taking place at the dollar’s expense and supports the view that risk sentiment is improving,” said Geoffrey Yu, senior market strategist for Europe, the Middle East and Africa at BNY."}],[{"start":166.99999999999997,"text":"Traders were going back to so-called carry currencies with higher interest rates, he added, saying these “yield-seeking flows” were being encouraged by bets that the Fed will cut rates this year."}],[{"start":178.04999999999998,"text":"That view has been fuelled by political pressure on the Fed for lower rates from US President Donald Trump. Kevin Warsh, Trump’s choice for Fed chair, has argued that AI-fuelled productivity could pave the way for lower US interest rates."}],[{"start":192.29999999999998,"text":"Warsh told US lawmakers on Tuesday at his Senate confirmation hearing that the president had “never asked me to predetermine, commit, fix, decide on any interest rate decision, in any of our discussions”."}],[{"start":206.1,"text":"Fund managers said a combination of the Fed outlook with trends that were in place before the war — such as a hit to confidence from erratic White House policymaking and a desire by international investors to reduce their exposure to US assets — is likely to weigh down the dollar as the conflict abates."}],[{"start":223.45,"text":"Wall Street banks are expecting the euro to rise to $1.20 next year from $1.175 currently and the pound to climb to $1.38 from its current $1.35."}],[{"start":236.5,"text":"“We still think those bigger-picture, secular forces will [ultimately] pressure the dollar weaker,” said Roger Hallam, head of international rates at Vanguard, an asset manager. “[But] the conflict will dictate the near-term direction.”"}],[{"start":255.9,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1776902643_2203.mp3"}