Bitcoin rises as Iran diplomacy hopes lift risk sentiment
The DXY dollar index climbed to an intraday high of 100.763 in early Tuesday trading, according to LSEG data, as markets priced in a 53% chance that the Federal Reserve would raise interest rates again at its October meeting. Traders were also pricing 78 basis points of expected Fed increases by September 2027, the data showed. The Wall Street Journal’s Tuesday morning coverage captured the moves as cross-asset pricing registered two competing signals at once: an aggressive U.S. monetary policy backdrop pulling the dollar up, and signs of diplomatic progress in the Middle East pulling energy prices and risk appetite in the opposite direction.
The U.S. currency’s strength cut across the Asian trading session, where most regional currencies consolidated against the greenback. The dollar edged 0.1% higher to 157.58 yen and was 0.25% lower against the South Korean won at 1,350.60, while the Australian dollar held flat at US$0.7110. Crude oil prices weakened amid hopes for de-escalation in the Middle East conflict and optimism that Saudi Arabian oil supplies through the Red Sea could be restored within days, Samer Hasn of XS.com said in a note.
Declining oil prices typically benefit Asian currencies because many countries in the region are net oil importers, Hasn said. The dollar’s typical response to falling crude — softening, given America’s position as a net oil exporter — was overridden on Tuesday by the pull of U.S. rate-rise expectations, the WSJ coverage noted. Saudi Arabia, meanwhile, began running tests on its East-West pipeline on Tuesday in a step toward restoring flows as soon as this week after the pipeline was damaged by attacks earlier this month, the Journal reported.
Against the euro, the dollar extended its gains as energy-driven interest-rate differentials tilted in favor of the U.S. currency. The euro fell to an eight-week low of $1.1421, LSEG data show. “This reflects the market’s view that inflation and monetary policy in the euro-area are more heavily influenced by energy prices than in the U.S.,” Thu Lan Nguyen of Commerzbank said in a note.
That assessment tracks recent inflation data, Nguyen added. Recent U.S. inflation prints suggest price pressures have become more broad-based, while the long-feared second-round effects in the euro area have so far remained limited, she said. The implication is that an easing of energy prices transmits more powerfully to euro-area inflation expectations than to U.S. ones, justifying a wider policy-rate differential in favor of the dollar.
The simultaneous rise in risk assets painted a more optimistic picture elsewhere in the markets. Bitcoin climbed 0.3% to $86,502 after having touched $87,315 on Monday, its highest level since late January. President Trump said Tuesday that U.S. officials had held a “very good meeting” with Iran on the sidelines of the United Nations General Assembly in New York, raising hopes for a diplomatic resolution to the Middle East conflict.
The convergence — a stronger dollar, consolidating Asian currencies, a weaker euro, and rising Bitcoin — illustrates the crosscurrents facing global markets as the Middle East conflict’s diplomatic track and the Fed’s tightening track moved on parallel paths during the same session.