By Gregor Stuart Hunter SINGAPORE, March 25 (Reuters) - Currency markets showed signs of fatigue early in Asian trade on Wednesday, with traders cautious over U.S. President Donald Trump's efforts to
Dollar firms as markets weigh Iran diplomacy
By Laura Matthews
Market Reactions and Global Economic Developments
NEW YORK, March 25 (Reuters) - The dollar advanced against major currencies on Wednesday, as traders weighed global inflation trends and remained skeptical of de-escalation in the Iran war.
Diplomatic Efforts and Geopolitical Tensions
Iran is still reviewing a U.S. proposal to end the conflict, despite an initially negative response, stopping short of rejecting it outright.
Tehran has said the Pakistan-delivered proposal was excessive and demanded sovereignty over the Strait of Hormuz. A senior Iranian official said talks could be held in Pakistan or Turkey if they proceed.
President Donald Trump said the U.S. was making progress in talks with Iran, but Tehran denied direct negotiations have taken place, keeping investors on edge.
Inflation and Economic Indicators
Meanwhile, U.S. import prices posted their biggest rise in nearly four years in February, reinforcing signs that inflation pressures are building.
Market Sentiment and Analyst Commentary
"Markets are perhaps having trouble interpreting the mixed signals" on peace talks, said Shaun Osborne, chief FX strategist at Scotiabank. He expects a fork in the road where either stock volatility falls meaningfully along with the dollar, or volatility remains elevated and stock and bond prices decline.
Currency Movements and Inflation Data
The U.S. dollar index, measuring the greenback's strength against a basket of six currencies, rose 0.44% to 99.62. The euro slipped 0.39% against the dollar to $1.1562, while the British pound fell 0.37% to $1.3362.
Sterling found little support earlier from data showing British consumer price inflation held at an annual rate of 3% in February, unchanged from January's rate, with inflation broadly expected to rise as the war in the Middle East pushes up prices.
Risk assessment remains split, with stocks and bonds trading firmer, and global crude oil prices dropping 1.37% at $103.06 per barrel.
Asia-Pacific Currency and Policy Updates
Against the yen, the U.S. dollar rose 0.49% to 159.46 yen. Minutes from the Bank of Japan's January policy meeting showed many board members saw the need to keep raising interest rates, without specifying the pace.
The Australian dollar was last down 0.63% at $0.6949. Inflation data for February showed a 3.7% rise prior to the start of the Iran war, slightly lower than expected by analysts.
Central Bank Policy Outlook
Market expectations of U.S. policy tightening are rising.
Fed funds futures now imply a small chance of a 25-basis-point hike at the Federal Reserve's December meeting, compared to a cut expected a week ago, CME Group's FedWatch tool shows.
"We are seeing early signs of a more hawkish tilt from central banks outside the Fed, particularly the ECB and BOJ, which should begin to narrow yield differentials at the margin," said Joel Kruger, market strategist at LMAX Group in London.
Cryptocurrency Market Update
In cryptocurrencies, bitcoin rose 1.20% to $70,900.42, while ether was up 0.8% at $2,165.12.
(Reporting by Laura Matthews in New York; Additional reporting by Sophie Kiderlin in London and Gregor Stuart Hunter in Singapore; Editing by Colin Barr, Alexander Smith and Chris Reese)
