Safe-Haven Demand Lifts Dollar to 1-Week High as Sources Confirm US-Iran Peace Talks Collapse

The dollar was steady and briefly hit a one-week high in Asian trade on Wednesday, as scepticism about U.S. President Donald Trump's announcement of an indefinite extension of a ceasefire with Iran lifted demand for the safe-haven currency. It was also boosted by U.S. Federal Reserve nominee Kevin Warsh's comments at a Senate confirmation hearing which were interpreted as slightly hawkish, and by strong retail sales data that provided an upbeat view on the strength of the American economy. The U.S. dollar index, which measures the greenback's strength against a basket of six currencies, retreated to 98.367 after earlier in the day touching its highest level since April 13.

"Trump extended the deadline for the ceasefire indefinitely while also keeping up the blockade on Iranian ports," analysts from DBS wrote in a research report. "This leaves the timeline for the normalisation of energy export flows from the Strait of Hormuz still in limbo." Most other currencies were unchanged after the ceasefire extension. The euro was steady at $1.1742 and the British pound was flat at $1.3511. The Australian dollar nudged up 0.1% to $0.7157 and the New Zealand dollar was 0.2% higher at $0.5907.

Against the yen, the U.S. dollar was flat at 159.35 yen after data earlier showed Japan's exports rose for a seventh straight month, defying any major impact from disruptions caused by the Gulf conflict.

The market is troubled by divisions between the hardline Islamic Revolutionary Guard Corps and more moderate factions within the Iranian government, said Tony Sycamore, market analyst at IG in Sydney.

"Make no mistake, this internal power struggle remains the single biggest obstacle to any lasting deal, and how it resolves remains to be seen," he said. U.S. retail sales increased 1.7% in March, more than the expected 1.4% rise, as the war with Iran boosted gasoline prices and led to a record surge in receipts at service stations, while tax refunds underpinned spending elsewhere.

REGIME CHANGE AT THE FED 

In Washington, Warsh said on Tuesday he had made no promises to Trump about cutting interest rates, as he tried to assure U.S. senators mulling his confirmation to lead the U.S. central bank that he would act independently of the White House while pursuing broad reforms. "The most interesting points were probably that he emphasised the Fed’s independence and clearly rejected any request from President Trump to cut rates; taken together, the overall tone could be described as slightly hawkish," said Junya Tanase, chief Japan FX strategist at JPMorgan Chase & Co in Tokyo. "That said, since OIS pricing barely moved even after Warsh’s remarks, yesterday’s rise in U.S. yields and the USD’s strength were likely driven mainly by higher oil prices on Iran-related news, suggesting Warsh’s impact was limited," he said, referring to overnight indexed swaps, which traders use to gauge market expectations of central bank decisions. Traders are dialling down expectations of when the Federal Reserve could next ease monetary policy, and they still lack conviction over the prospect of rate cuts until deep into 2027. Fed funds futures are pricing in an implied 59.7% probability that the U.S. central bank will hold rates steady as late as its meeting ending on April 28 next year, compared to a 56.7% chance of a cut the previous day, according to the CME Group's FedWatch tool.

In cryptocurrencies, bitcoin was up 2.5% at $77,610.10, while ether jumped 2.4% to $2,373.76. (Reporting by Gregor Stuart Hunter; Editing by Muralikumar Anantharaman)

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