The greenback continues to retreat

It’s a battle between the greenback and emerging market currencies as the outlook for the war and the blockade in the Strait of Hormuz changes by the hour.

The USD was down by roughly 2.3% against its peers since its late-March peak, losing value against virtually all major currencies bar Japan’s JPY, the Financial Times reports. The EUR has also clawed back nearly all of its losses since the start of the US’s war with Iran, and riskier wagers in emerging markets were also seeing gains at the USD’s expense.

And after regaining some ground on Thursday, the greenback lost ground over the weekend thanks to pressure from two fronts: the Justice Department’s closure of a probe into Fed Chairman Jerome Powell and rising hopes for a resolution to the US-Iran conflict. The USD index, which measures the value of the greenback against a basket of six major currencies, fell 0.28% to 98.55 on Friday.

Heading into the weekend, EM currencies and equities saw a dip as tensions in the Strait of Hormuz persisted and prospects of US-Iran negotiations remain unclear. MSCI's gauge for emerging market currencies shed 0.2%.

What’s happening? Since the conflict began, the greenback has been enjoying a rebound in its safe-haven status, clawing its way back into investors’ favor, while other defensive asset classes like bonds and gold took a hit. However, recent ceasefire negotiations and hopes of an end to the war are sending mixed signals, providing a bit of hope for risky assets but keeping volatility high amid ongoing tensions around the Strait of Hormuz.

While “risk sentiment is improving,” as BNY’s Geoffrey Yu noted, the prospect of the Fed cutting interest rates is clouding the USD outlook. A simultaneous likely uptick in European rates on the back of higher energy costs means foreign capital will probably be looking elsewhere to deposit their funds to secure higher yields.

The outlook: The USD is likely to continue to fall until the war ends as increasingly unpredictable US policy pushes investors to roll back their exposure to US assets. Meanwhile, as things stand, Wall Street lenders predict the EUR will rise to USD 1.2 next year, up from USD 1.175 now, while the GBP is also set to inch up.

Conflict duration is the key decider: “The conflict will dictate the near-term direction,” Vanguard’s Roger Hallam said, indicating that the wider macro environment is pointing to a weaker USD.

Now analysts see a ceasefire as the likely outcome: “Our base case remains that it is in the interest of both parties to come to a deal [...] despite hiccups,” Jeffries’ chief Europe economist Mohit Kumar said.

THE CLOSING BELL: TADAWUL-

The TASI fell 1.2% on Thursday on turnover of SAR 6.0 bn. The index is up 5.9% YTD.

In the green: Saudi Darb (+8.1%), Petro Rabigh (+6.9%), and Baan (+6.1%).

In the red: Advanced (-6.8%), Sabic Agri-Nutrients (-5.1%), and Tasnee (-4.7%).

THE CLOSING BELL: NOMU-

The NomuC remained flat on Thursday on turnover of SAR 21.2 mn. The index is down 1.9% YTD.

In the green: IOud (+11.9%), Food Gate (+8.7%), and Knowledgenet (+8.5%).

In the red: SPC (-17.7%), Tharwah (-9.9%), and Lana (-9.4%).

CORPORATE ACTIONS-

The Company for Cooperative Ins.’ (Tawuniya) board recommended increasing its capital by 50% to SAR 2.25 bn by granting bonus shares, according to a Tadawul disclosure. Each shareholder will get one bonus share for every two shares held at the eligibility date. The move aims to support the firm’s expansion in the upcoming years.

Dividends: Tawuniya also recommended a dividend payment of SAR 300 mn for 2025, which is equivalent to SAR 2 per share, according to a separate disclosure.