The US Dollar Index (DXY) traded marginally higher at around 99.25 during the early European session on Friday, as market participants remained confident that the United States and Iran would reach a deal soon, according to reports from the Iranian Labour News Agency (ILNA) and Al Arabiya. The ILNA stated that a final draft between the US and Iran had been reached with Pakistan's mediation, and a deal could be announced within hours. Key provisions of the agreement include an immediate ceasefire on all fronts, guaranteed freedom of navigation in the Gulf and the Strait of Hormuz, and the launch of negotiations on outstanding issues within a week [1][3]. However, sticking points remain, such as Iran’s uranium enrichment and control over the Strait of Hormuz, which US President Donald Trump has repeatedly called non-negotiable [1]. US Secretary of State Marco Rubio confirmed 'some good signs' in talks but noted differences remain over Tehran’s uranium stockpile and controls over the waterway [3].
The optimism surrounding a potential US-Iran deal led to a sharp recovery in riskier assets and weighed heavily on oil prices. As of writing, WTI Oil traded 0.7% lower at around $96.27, close to its weekly low of $94.94 posted on Thursday [3]. Currencies from economies reliant on oil imports, such as India, attracted bids following the correction in oil prices, with the Indian Rupee (INR) extending its recovery against the US Dollar and the USD/INR pair sliding to near 95.95 [3].
Despite the decline in oil prices, the US Dollar remained broadly firm, supported by hawkish Federal Reserve bets. Traders are confident that the Fed will either hold interest rates steady or deliver at least one interest rate hike this year, with the CME FedWatch tool showing odds of 50.8% for holding rates and 48.1% for a hike [1][3]. Technical analysis indicates the Dollar Index Spot holds above the 20-period Exponential Moving Average (EMA) at 98.79, keeping the near-term bias constructive, though upside momentum remains muted as the Relative Strength Index (RSI) struggles to break above 60.00 [1].
In the Eurozone, EUR/USD has fallen to around 1.16 as markets price a higher probability of a Fed rate hike by year-end, while expecting the European Central Bank (ECB) to react less to inflation. Diverging PMI data show the Eurozone economy is hit harder by higher oil and gas prices than the US, leaving EUR/USD sensitive to developments in the Iran conflict. Commerzbank’s Volkmar Baur notes that a swift resolution of the Iran conflict would support the euro, as markets would likely price in Fed rate cuts again, but if the conflict persists, the euro is likely to lose ground against the US dollar due to the more severe economic impact in Europe [2].
Foreign Institutional Investors (FIIs) remain net sellers in the Indian stock market for the third straight trading day, offloading stakes worth Rs. 1,891.21 crore amid concerns regarding India Inc.’s earnings projections and elevated oil prices. Analysts at Bank of America forecast India Inc.’s earnings growth at about 8.5% for the current financial year, while South Korea and Taiwan are projected to deliver stronger earnings growth [3].
CONCLUSION
Optimism over a potential US-Iran deal has led to lower oil prices, strengthening the Indian Rupee and supporting the US Dollar. However, unresolved issues in the negotiations and diverging central bank responses continue to impact currency markets, with the euro under pressure and FIIs remaining cautious in India. The market remains sensitive to further developments in the US-Iran talks, which could shift rate expectations and currency movements.