US dollar near 10-day low as BOJ rate hike and Fed test FX markets

The US dollar held near 10-day lows on Tuesday as traders weighed the relief from a preliminary US-Iran peace agreement against a heavy week of central-bank decisions.

The deal has helped calm oil markets and improve risk appetite, but currency moves have been more measured than the rally in stocks and bonds.

Investors are still waiting for details on the Strait of Hormuz reopening, Iran’s nuclear programme and the durability of the ceasefire.

The yen, meanwhile, stayed close to 160 per dollar after the Bank of Japan raised rates to the highest level in three decades.

Peace trade softens the dollar, but only slightly

The dollar index hovered near 99.66, close to its weakest level in 10 days, as lower oil prices reduced some of the inflation premium built into the greenback during the Middle East conflict.

The euro traded around $1.159, while sterling was near $1.341. The moves were modest, showing that FX traders are not yet ready to price a clean return to pre-war conditions.

Tony Sycamore, market analyst at IG, told Reuters that energy markets had moved quickly to price out the immediate risk of prolonged supply disruption, but the path back to normal flows remained far from straightforward.

That caution is important. A reopening of Hormuz would ease pressure on fuel prices, but shipping, insurance and supply-chain confidence may take longer to normalise.

BOJ rate hike does little for the yen

The Bank of Japan raised its key rate to 1%, the highest level in 31 years, in a widely expected move aimed at containing inflation risks.

The yen, however, remained near 160 per dollar, a level that keeps intervention risk alive.

Traders want to know whether the BOJ is still prepared to tighten further after the oil shock has eased.

Analysts noted that any dovish reading of BOJ communication could revive yen and Japanese government bond shorts, making stabilisation efforts more costly.

RBA and Fed keep traders cautious

The Australian dollar traded near $0.706 after the Reserve Bank of Australia held rates at 4.35%, following three increases earlier this year.

The decision keeps attention on whether policymakers are more worried about inflation or slowing growth.

Analysts added that the Aussie could face downside risk if the RBA highlights growth concerns, though a sharper fall would probably require a collapse in US-Iran talks.

The Federal Reserve and Bank of England are due later this week. For now, the dollar’s weakness rests on relief, not conviction.