Investors were quick to seek comfort in a report that Iranian intelligence officials indicated they were open to talks with the CIA to end the war despite Tehran’s denials, underscoring a sense of frustration towards a conflict that has rocked global markets.
The dollar fell further from a three-month high hit earlier this week and settled at 98.78 against a basket of currencies.
The euro, meanwhile, was up slightly at $1.1636, having fallen to a more than three-month low on Tuesday, while sterling was steady at $1.3366.
“I wouldn’t say it was particularly good news, because Iran came up and kind of denied the report, and it’s still unclear how long the war will last and how long the effects will last, but the markets certainly have a relatively bad view,” said Carol Kang, currency strategist at Australia’s Commonwealth Bank.
She added that sentiment was also helped by encouraging U.S. economic data released on Wednesday that showed service sector activity hit a 3-1/2-year high in February as businesses rebuilt inventories in anticipation of strong demand.
Still, the dollar continues to gain more than 1% for the week so far, emerging as one of the few winners in a volatile session that sent stocks, bonds and sometimes even the safe-haven precious metal lower. A surge in energy prices since the end of the Middle East conflict has raised fears of a resurgence of inflation that could erode the rate outlook for major central banks.
“Markets have largely traded the Middle East war as a deflationary risk,” said Bas van Geffen, chief strategist at Rabobank.
“In the case of the (Federal Reserve) and the Bank of England, that means cutting rates, but the EUR money markets are now pricing in about 40% terms that the (European Central Bank) may raise rates before the end of the year.”
The yen likewise found some support from a weaker greenback on Thursday and rose 0.2% to 156.78 per dollar.
The Australian dollar was up 0.14% at $0.7085, extending a 0.57% gain from the previous session, while the New Zealand dollar was little changed at $0.5942.
Despite normally being a risk-sensitive currency, Australia benefited from a rare safe-haven bid this week as the country’s energy abundance cushions the impact of rising oil prices.
Elsewhere, the onshore yuan was up 0.12% at 6.8860 per dollar, ahead of the onshore open.
China has set an economic growth target of 4.5%-5% for 2026, a slight slowdown from the 5% pace achieved last year, leaving room for more efforts to reduce industrial capacity and rebalance the economy, though no decision has been made.
Bitcoin and Ether each fell about 1%, rallying strongly overnight as risk appetite improved.
