The dollar index (DXY00) on Friday fell by -0.24%. The dollar gave up an early advance and turned lower on Friday as stocks rallied on optimism that peace talks between the US and Iran are set to resume. Bloomberg reported that Iranian Foreign Minister Abbas Araghchi is expected to arrive in Pakistan on Friday night for a possible second round of peace talks between the US and Iran. Falling crude oil prices on Friday lowered inflation expectations, a dovish factor for Fed policy, and a negative factor for the dollar. In addition, strength in stocks on Friday reduced liquidity demand for the dollar. The dollar recovered from its worst level after the University of Michigan’s US Apr consumer sentiment index was revised higher than expected.
Heightened US-Iran tensions are boosting safe-haven demand for the dollar. The US and Iran are locked in a battle for control of the Strait of Hormuz, with both sides blocking the waterway to gain leverage during an extended ceasefire. The US said it was waiting for a response from Iran before peace talks could restart, and Iran said it will not resume negotiations while a US naval blockade on its ports is in place.
The University of Michigan US Apr consumer sentiment index was revised upward by +2.2 to 49.8, stronger than expectations of 48.5.
The University of Michigan US Apr 1-year inflation expectations were revised downward by -0.1 to 4.7% from 4.8%. The Apr 5-10 year inflation expectations were revised upward by +0.1 to a 6-month high of 3.5% from 3.4%.
Swaps markets are discounting the odds at 1% for a +25 bp rate hike at the April 28-29 FOMC meeting.
The dollar continues to be undercut by a poor outlook for interest rate differentials, with the FOMC expected to cut interest rates by at least -25 bp in 2026, while the BOJ and ECB are expected to raise rates by at least +25 bp in 2026.
EUR/USD (^EURUSD) on Friday rose by +0.32%. The euro moved higher on Friday amid dollar weakness. Also, hawkish comments on Friday from ECB Governing Council member Peter Kazimir boosted the euro when he said the Iran war might necessitate a slight ECB interest rate increase. Gains in the euro were limited after the German Apr IFO business confidence index fell more than expected to a nearly 6-year low.
