Asia FX firms, dollar dips after Trump announces Israel

US Dollar Japanese Yen-0.19%Australian Dollar US Dollar0.09%US Dollar Singapore Dollar-0.05%US Dollar Indian Rupee0.00%US Dollar Korean Won-0.16%US Dollar Chinese Yuan0.00%DX-0.06%DXY-0.17%

Investing.com-- Most Asian currencies advanced on lcm foreign exchange dealerTuesday, while the dollar retreated after U.S. President Donald Trump said Israel and Iran had agreed to a ceasefire.

But overall risk sentiment was still limited as traders waited for Israel and Iran to officially confirm the truce. Iran launched a missile strike against Israel early-Tuesday, just before the purported deadline for the ceasefire. 

Regional currencies were also encouraged by growing expectations that the Federal Reserve will cut interest rates soon, potentially by July. This notion weighed on the dollar. 

Asia FX firms on ceasefire announcement, more details awaited 

Most Asian currencies firmed amid improving risk appetite, with the Australian dollar’s AUDUSD pair surging 0.5%. The Aussie is viewed as a major indicator of risk sentiment in Asia. 

The Chinese yuan’s USDCNY pair fell slightly, while the Japanese yen’s USDJPY pair fell 0.5%, recovering from sharp losses in the prior session. The yen, which typically acts as a safe haven currency, saw limited demand on Monday, even after the U.S. attacked Iran’s nuclear facilities. 

Focus this week is on Tokyo inflation data for more cues on Japanese inflation, which is likely to factor into expectations for the Bank of Japan’s interest rate path.

The South Korean won’s USDKRW pair fell 0.3%, while the Singapore dollar’s USDSGD pair fell 0.2%. The Indian rupee’s USDINR pair was flat. 

Trump on Monday evening said Iran and Israel had agreed to a ceasefire, and that their renewed war will end if the ceasefire holds for 24 hours.

Iran was seen launching a missile strike against Israel just minutes before the deadline for Trump’s ceasefire. 

Markets were now awaiting official confirmation from Tehran and Jerusalem that they will adhere to the truce. Tensions over Iran were also high after the U.S. attacked the country’s key nuclear facilities over the weekend, with Trump claiming to have obliterated the targets. 

Dollar drops, rate cut bets weigh 

The dollar index and dollar index futures fell about 0.3% each in Asian trade, giving back a bulk of their gains in the past week. 

Improving sentiment towards Israel and Iran sapped the greenback of some safe haven demand.

Increasing speculation over whether the Federal Reserve will cut interest rates in July also pressured the dollar, with CME Fedwatch showing markets pricing in an over 20% chance the Fed will cut rates in July, up from 15% last week. 

Speculation over rate cuts comes before Fed Chair Jerome Powell’s testimony before Congress, which is set to begin later on Tuesday. 

Powell had last week remained largely non-committal towards cutting interest rates further, and had warned that sticky inflation was likely to lessen the prospect of any rate cuts in the near-term.