The U.S. dollar retreats after hitting a one-week high, with prospects for a temporary U.S.-Iran agreement unclear
The dollar retreated on Wednesday after hitting about a one-week high after U.S. President Donald Trump said an interim memorandum of understanding signed to end the conflict with Iran was "dead" while investors digested minutes from the Federal Reserve's latest meeting. Trump said the interim memorandum of understanding aimed at ending the war with Iran was "dead" and said the United States was likely to launch a new round of strikes late Wednesday after Iran attacked U.S. military bases in the Gulf. However, Trump has also said that he does not foresee a return to all-out war, and it is unclear whether negotiations to reach a permanent agreement will continue. Oil prices soared, with U.S. crude oil futures rising 4.36% to $73.51 a barrel, and Brent crude oil futures climbing to $78 a barrel, up 5.23% on the day. U.S. Treasury yields also moved higher. The U.S. dollar index, which measures the dollar's exchange rate against a basket of currencies, fell 0.2% to 100.98 after rising to 101.27 in early trading; the euro rose 0.12% to $1.1425. "Long positions are slightly crowded, which suggests that a stronger dollar has fully priced in expectations for the Fed to raise interest rates and support U.S. interest rate differentials. Geopolitical risks are also largely priced into the currency," said Thomas Urano, co-chief investment officer at Sage Advisory in Austin, Texas. He also noted that the dollar has risen significantly since hitting lows in late January this year. "This puts the dollar now in a position where it could face a minor correction." The CME Group's FedWatch tool shows that the market's expectation that the Federal Reserve will raise interest rates by at least 25 basis points at its July meeting rose to 30.5% from 26.7% on the previous trading day, and the probability of raising interest rates at the September meeting rose from 61.9% to 65.7%. Fed meeting minutes in focus Meanwhile, the New Zealand dollar rose 0.49% to $0.5705, although it was off the highs hit earlier. Previously, the New Zealand Bank of England raised interest rates by 25 basis points to 2.5% as expected by most economists to curb inflationary pressures. The central bank said "further reductions in monetary stimulus may be needed" to control inflation. Analysts said in the report that they believe New Zealand's start of a rate hike cycle - "albeit a shorter cycle" - will be positive for the New Zealand dollar and "is part of a broader trend of its macroeconomic conditions and monetary policy moving closer to that of many G10 countries." Minutes of the Federal Reserve’s June meeting showed policymakers were Concerns about inflation have intensified, and at the June 16-17 meeting, several participants believed there was reason to raise interest rates immediately. This is the first policy meeting hosted by Fed Chairman Warsh. "You still have to lean a little bit toward the risk that they could raise rates later this year," Urano said. The dollar rose 0.23% against the yen to 162.46 yen, on track for a fourth consecutive day of gains, as traders remained wary of signs that Japanese authorities may intervene in the currency market. Sterling rose 0.37% to $1.3401, having hit a three-week high of $1.341.