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The US dollar initially faced losses on Friday due to positive developments regarding US-Iran relations, particularly following Iran's announcement to reopen the Strait of Hormuz. However, the dollar recovered its losses as President Trump stated that the US would maintain its blockade of the Strait until a formal agreement with Iran was reached. This led traders to hedge against potential escalations over the weekend, especially after Iran reclosed the Strait in response to the blockade.
Despite the tensions, the ceasefire between the US and Iran remains intact, with ongoing discussions suggesting a preference for a diplomatic resolution. However, the ceasefire is set to expire soon, and market expectations lean towards an extension, given the historical context of negotiations. The price movements of USDJPY are closely tied to developments in US-Iran relations, and this trend is anticipated to continue until a resolution is officially announced.
On the Japanese yen side, the currency's performance has largely been influenced by fluctuations in the US dollar, as Japan's economic indicators suggest a neutral monetary policy stance. Inflation in Japan is gradually easing, with most metrics hovering around or below the 2% target. The ongoing conflict has exerted upward pressure on inflation while simultaneously hindering economic growth. The Bank of Japan is expected to maintain current interest rates, with only a 17% chance of a hike in April, as it awaits clearer economic signals before making any adjustments.
Source: KLEA News