MUFG’s Lee Hardman notes the US Dollar (USD) has rebounded, lifting the Dollar Index (DXY) back above 98.000 as stalled Middle East peace talks and a stronger April Nonfarm Payrolls (NFP) report underpin demand. Hardman highlights risks from a prolonged Strait of Hormuz disruption, firmer US labour data, and expectations that the Federal Reserve (Fed) will keep rates on hold.

Peace impasse and jobs data back Dollar

"The US dollar has staged a modest rebound at the start of this week helping to lift the dollar index back above the 98.000-level which has provided good support over the past month."

"The US dollar has derived support overnight from reports that the US and Iran have both rejected each other’s latest peace proposals putting a dampener on investor optimism that a deal could be reached soon to end the conflict and re-open the Strait of Hormuz."

"The latest developments continue to highlight the risk of a more prolonged closure of the Strait of Hormuz which would be disruptive for the global economy and financial markets."

"At the same time, the US dollar has been supported in part by the release of the stronger than expected nonfarm payrolls report for April."

"Overall, we believe the latest developments favour the Fed leaving rates on hold."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)