The greenback faltered for a few weeks as ceasefire prospects grew, but it’s staging a comeback

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.

Yesterday, though, the USD seems to have regained some ground, with the USD index, which measures the value of the greenback against a basket of six major currencies, gaining yesterday. EM currencies and equities also 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 EUR 1.2 next year, up from EUR 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.

MARKETS THIS MORNING-

Asian markets are mostly in the red this morning, with the only outlier being Japan’s Nikkei, which rose 0.7%. Over on Wall Street, futures are trading flat after a day in the red for Wall Street.

THE CLOSING BELL-

The DFM remained flat yesterday on turnover of AED 823.7 mn. The index is down 3.9% YTD.

In the green: Gulf Navigation Holding (+14.8%), National International Holding Company (+9.2%), and National Cement Company (+3.6%).

In the red: Amlak Finance (-4.7%), National General Ins. Company (-4.7%), and Al Mazaya Holding Company (-4.3%).

Over on the ADX, the index fell 0.4% on turnover of AED 776.2 mn. Meanwhile, Nasdaq Dubai was down 0.4%.

CORPORATE ACTIONS

UAE retailer Lulu Group’s general assembly approved distributing AED 361.5 mn in dividends for 2H 2025, according to a disclosure (pdf). The payout, equivalent to 3.5 fils per share, brings total dividends for the year to AED 723 mn.