Dollar stumbles as optimism from fragile Israel-Iran truce lingers
Global markets rallied as a fragile truce between Israel and Iran, brokered by the U.S., eased geopolitical tensions. Investors shed safe-haven assets, weakening the dollar. The euro neared its highest level since October 2021, while the Australian dollar saw gains.
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The dollar struggled to regain lost ground on Wednesday as investors who have been starved of good news latched onto optimism over a fragile truce between Israel and Iran as a reason to take on more risk.Markets were jubilant and an index of global shares hit a record high overnight as a shaky ceasefire brokered by U.S. President Donald Trump took hold between Iran and Israel.The two nations signalled that the air war between them had ended, at least for now, after Trump publicly scolded them for violating a ceasefire he announced.Investors heavily sold the dollar in the wake of the news, after pouring into the safe-haven currency during the 12 days of war between Israel and Iran that also saw the U.S. attack Iran's uranium-enrichment facilities.Currency moves were more subdued in early Asia trade on Wednesday though the euro remained perched near its highest since October 2021 at $1.1621, having hit that milestone in the previous session.Sterling eased 0.02% to $1.3615 but was similarly not far from Tuesday's peak of $1.3648, which marked its strongest level since January 2022.The risk-sensitive Australian dollar, which rallied sharply in the previous session, last traded 0.02% higher at $0.6492.While the truce between Israel and Iran appeared fragile, investors for now seemed to welcome any reprieve."The market is complacent about some of the downside risks," said Joseph Capurso, head of international and sustainable economics at Commonwealth Bank of Australia."The thing I get is this issue is not over, which means it could come back to be a driver of commodity prices and currency markets again."In other currencies, the New Zealand dollar rose 0.13% to $0.6015, while the yen steadied at 144.96 per dollar.Some Bank of Japan policymakers called for keeping interest rates steady for the time being due to uncertainty over the impact of U.S. tariffs on Japan's economy, a summary of opinions at the bank's June policy meeting showed on Wednesday.The Swiss franc, which scaled a 10-1/2-year high on Tuesday, steadied at 0.8049 per dollar.Against a basket of currencies, the dollar eased slightly to 97.91.While Federal Reserve Chair Jerome Powell stuck to his cautious approach and reiterated that the central bank was in no rush to ease rates at his semi-annual testimony to Congress on Tuesday, markets continue to price in a roughly 18% chance that the Fed could cut in July, according to the CME FedWatch tool."We think economic growth is slowing and the improvement in services and shelter inflation will push back against tariff rises, allowing cuts to resume in September," ANZ analysts said in a note.A raft of weaker-than-expected U.S. economic data in recent weeks have bolstered expectations of Fed cuts this year, with futures pointing to nearly 60 basis points worth of easing by December.Data on Tuesday showed U.S. consumer confidence unexpectedly deteriorated in June as households grew increasingly worried about job availability, another indication that labour market conditions were softening.The two-year U.S. Treasury yield, which typically reflects near-term rate expectations, fell to a 1-1/2-month low of 3.7870% on Wednesday.The benchmark 10-year yield was little changed at 4.3043%.
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Hindustan Times
19 minutes ago
- Hindustan Times
Israel-Iran Conflict Spurs China to Reconsider Russian Gas Pipeline
The original Power of Siberia pipeline opened in 2019. The war between Israel and Iran has revived Chinese leaders' interest in a pipeline that would carry Russian natural gas to China, according to people close to Beijing's decision-making, potentially jump-starting a project that has been stalled for years. The Power of Siberia 2 pipeline project has been mired in disagreements over pricing and ownership terms, as well as Chinese concerns about relying too heavily on Russia for its energy supplies. But the recent war in the Middle East has given Beijing reason to reconsider the reliability of the oil and natural gas it gets from the region, the people said, even as a fragile cease-fire between Israel and Iran takes hold. China imports around 30% of its gas in the form of liquefied natural gas from Qatar and the United Arab Emirates via the Strait of Hormuz, a maritime chokepoint that Iran threatened to close, according to consulting firm Rystad Energy. Meanwhile, China's independent refineries, known as teapots, have in recent years become hooked on cheap Iranian crude. More than 90% of Iran's oil exports now go to China, analysts say, even though the U.S. has sanctions designed to prevent Iran from selling its oil abroad. Trump made an unusual acknowledgment of China's Iranian oil imports Tuesday after announcing a cease-fire in the Israel-Iran conflict. 'China can now continue to purchase Oil from Iran. Hopefully, they will be purchasing plenty from the U.S., also,' he said in a post on social media. A White House official later said Trump was simply calling attention to the fact that the cease-fire prevented disruption to oil flows through the Strait of Hormuz. He continues to call on China to import U.S. oil rather than Iranian oil in violation of U.S. sanctions, the official said. But, even with a cease-fire in place, the recent conflict has spurred Beijing to cast about for alternatives, the people and analysts say. Beijing is also looking to increase oil purchases from Russia, which supplies around one-fifth of China's oil, analysts say. Moscow has been pushing to boost its energy sales to its neighbor as it needs cash to fund its war in Ukraine. 'The volatility and unpredictability of the military situation have shown the Chinese leadership that stable land-based pipeline supply has geopolitical benefits,' said Alexander Gabuev, the director of the Carnegie Russia Eurasia Center and an expert on China-Russia relations. 'Russia could benefit from that.' Russian state media have linked the tensions in the Middle East to the revival of the Power of Siberia 2 project. 'LNG Armageddon: China Urgently Returns to Power of Siberia 2 Project,' read one recent headline on Prime, a Russian state news website. Russia is expected to try to put the project on the agenda when President Vladimir Putin visits Chinese leader Xi Jinping in China in September, analysts say. The Power of Siberia 2, a sequel to the original Power of Siberia gas link that opened in 2019, has long been more urgent to Moscow than to Beijing. Russia lost its biggest energy market when much of its gas exports to Europe stopped after its invasion of Ukraine. Since then, Moscow has become increasingly dependent on China as a buyer. But limited pipeline infrastructure and small LNG capacity meant that only a new, bigger pipeline could significantly boost supplies to China. For Beijing, on the other hand, LNG supplies from the Middle East and other places meant that a deal was far less crucial. One official reason they have given to Russia is that China limits the import of oil and gas from a single country to 20%, according to the people close to Beijing's decision-making. As a result, talks have dragged on for years, even as Moscow has repeatedly indicated a deal was imminent. That might now be changing. The Strait of Hormuz, which flows between Oman and Iran and connects the energy-rich Persian Gulf with the Arabian Sea, is deep and wide enough to handle the world's largest tankers. That makes it a critical pass-through point for oil and gas, and its closure could disrupt markets and raise energy costs. The likelihood of a complete closure of the Strait is low because of Iran's reliance on it and the potential U.S. military response it could draw, analysts say, but the recent conflict has highlighted the impact such a move would have. 'The escalation of the Middle East tensions underscores the severe consequences of a potential blockade in the Strait of Hormuz,' said Wei Xiong, head of China gas research at Rystad. If the chokepoint is blocked, 'China's LNG supply situation will face huge change, moving from being over-contracted to supply deficit.' Beyond the current turmoil in the Gulf, the U.S.-China trade war has in recent months led to a halt in U.S. LNG exports there, reversing years of growing energy trade between the two nations. Longer term, as China pursues its green energy goals, Beijing foresees an expanding role for natural gas as a so-called bridge fuel between the hydrocarbon and post-carbon eras, analysts say. China is also interested in strengthening its relationship with Russia at a time when the Trump administration has openly discussed trying to drive a wedge between Beijing and Moscow, the people close to Beijing's decision-making said. Moving ahead with the stalled pipeline could help solidify those ties. To be sure, even if an agreement on the pipeline is reached, analysts estimate its construction will take at least five years, similar to the original 1,800-mile long gas link. Other significant hurdles remain, including a disagreement on gas pricing and the considerable investment required for the large-scale construction. Another sticking point is China's demand for ownership stakes in the project, a concession Russia has been unwilling to make. The disagreements are ultimately a sign of mistrust that has lingered between the two countries—despite what Putin and Xi once declared was a 'no-limits' friendship. Write to Georgi Kantchev at and Lingling Wei at
Hindustan Times
19 minutes ago
- Hindustan Times
Israel-Iran war highlights Mideast's declining influence on oil prices: Bousso
* Israel-Iran war highlights Mideast's declining influence on oil prices: Bousso Brent oil prices rise by 15% before quickly returning to pre-conflict levels * Price reaction points to the market's growing efficiency thanks to technology * Share of OPEC has diminished in recent decades to around 33% By Ron Bousso LONDON, - The contained move in oil prices during the Israel-Iran war highlights the increasing efficiency of energy markets and fundamental changes to global crude supply, suggesting that Middle East politics will no longer be the dominant force in oil markets they once were. The jump in oil prices following Israel's surprise attack on Iran was meaningful but relatively modest considering the high stakes involved in the conflict between the Middle East rivals. Benchmark Brent crude prices, often considered a gauge for geopolitical risk, rose from below $70 a barrel on June 12, the day before Israel's initial attack, to a peak of $81.40 on June 23 following the United States' strikes on Iranian nuclear facilities. Prices, however, dropped sharply that same day after it became clear Iran's retaliation against Washington – a well-telegraphed attack on a U.S. military base in Qatar that caused limited damage – was essentially an act of de-escalation. Prices then fell to below pre-war levels at $67 on Tuesday after U.S. President Donald Trump announced that Israel and Iran had agreed to a ceasefire. The doomsday scenario for energy markets – Iran blocking the Strait of Hormuz, through which nearly 20% of the world's oil and gas supplies pass – did not occur. In fact, there was almost no disruption to flows out of the Middle East throughout the duration of the conflict. So, for the time being, it looks like markets were right not to panic. SHRINKING RISK PREMIUM The moderate 15% low-to-high swing during this conflict suggests oil traders and investors have slashed the risk premium for geopolitical tensions in the Middle East. Consider the impact on prices of previous tensions in the region. The 1973 Arab oil embargo led to a near quadrupling of oil prices. Disruption to Iranian oil output following the 1979 revolution led to a doubling of spot prices. Iraq's invasion of neighbouring Kuwait in August 1990 caused the price of Brent crude to double to $40 a barrel by mid-October. And the start of the second Gulf war in 2003 led to a 46% surge in prices. While many of these supply disruptions – with the exception of the oil embargo – ended up being brief, markets reacted violently. One, of course, needs to be careful when comparing conflicts because each is unique, but the oil market's response to major disruptions in the Middle East has – in percentage terms, at least – progressively diminished in recent decades. SENSE AND SENSIBILITY There are multiple potential explanations for this change in the perceived value of the Middle East risk premium. First, markets may simply be more rational than in the past given access to better news, data and technology. Investors have become extremely savvy in keeping tabs on near-live energy market conditions. Using satellite ship tracking and aerial images of oilfields, ports and refineries, traders can monitor oil and gas production and transportation, enabling them to better understand supply and demand balances than was possible in previous decades. In this latest conflict, markets certainly responded rationally. The risk of a supply disruption increased, so prices did as well, but not excessively because there were significant doubts about Iran's actual ability or willingness to disrupt maritime activity over a long period of time. Another explanation for the limited price moves could be that producers in the region – again, rational actors – learned from previous conflicts and responded in kind by building alternative export routes and storage to limit the impact of any disruption in the Gulf. Saudi Arabia, the world's top oil exporter, producing around 9 million bpd, nearly a tenth of global demand, now has a crude pipeline running from the Gulf coast to the Red Sea port city of Yanbu in the west, which would have allowed it to bypass the Strait of Hormuz. The pipeline has capacity of 5 million bpd and could probably be expanded by another 2 million bpd. Additionally, the United Arab Emirates, another major OPEC and regional producer, with output of around 3.3 million bpd of crude, has a 1.5 million bpd pipeline linking its onshore oilfields to the Fujairah oil terminal that is east of the Strait of Hormuz. Both countries, as well as Kuwait and Iran, also have significant storage facilities in Asia and Europe that would allow them to continue supplying customers even through brief disruptions. SHIFTING FUNDAMENTALS Perhaps the most important reason for the world's diminishing concern over Mideast oil supply disruptions is the simple fact that a smaller percentage of the world's energy supplies now comes from the Middle East. In recent decades, oil production has surged in new basins such as the United States, Brazil, Guyana, Canada and even China. OPEC's share of global oil supply declined from over 50% in the 1970s to 37% in 2010 and further to 33% in 2023, according to the International Energy Agency, largely because of surge in shale oil production in the United States, the world's largest energy consumer. To be sure, the global oil market was well supplied going into the latest conflict, further alleviating concerns. Ultimately, therefore, the Israel-Iran war is further evidence that the link between Middle East politics and energy prices has loosened, perhaps permanently. So geopolitical risk may keep rising, but don't expect energy prices to follow suit. Enjoying this column? Check out Reuters Open Interest ,your essential new source for global financial commentary. ROI delivers thought-provoking, data-driven analysis. Markets are moving faster than ever. ROI can help you keep up. Follow ROI on LinkedIn and X. This article was generated from an automated news agency feed without modifications to text.
Mint
20 minutes ago
- Mint
Japans Nikkei ends at over 4-month high as chip-related shares track US peers higher
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