The U.S. dollar approached its lowest levels in six weeks on Wednesday, giving up most of the gains it achieved since the outbreak of the war with Iran, amid signs of the potential resumption of a new round of talks between Washington and Tehran, which boosted investor risk appetite.

Since the start of the war between the United States and Israel on one side and Iran on the other on February 28, Tehran has effectively closed the Strait of Hormuz, a vital waterway through which about one-fifth of global oil and gas shipments pass, leading to a sharp rise in energy prices and increased concerns regarding the impact on global growth and inflation.

Washington imposed a blockade on Iranian ports after the collapse of weekend talks, but U.S. President Donald Trump said on Tuesday that talks to end the war may resume in Pakistan within the coming days, which contributed to strengthening investor confidence and reducing demand for the dollar as a safe haven.

Regarding other currencies, the euro declined slightly by 0.1% to $1.177, near its highest levels since March 2, and the British pound also fell slightly to $1.355.

As for the dollar index, which measures the performance of the American currency against a basket of six major currencies, it returned to its level at the end of February, after having risen by about 3% in early March.

Although the talks that took place in Islamabad last weekend did not yield a breakthrough, raising doubts about the sustainability of a two-week truce that still has one week remaining, investors still hold onto hopes that diplomatic efforts will lead to a solution.

The dollar had benefited significantly from safe-haven flows in March; however, optimism regarding the ceasefire and the possibility of reaching a settlement pushed it to decline by about 2% this month against major currencies.

With the continuation of the state of uncertainty, Lee Hardman, currency strategist at MUFG Bank, warned against rushing to bet on a further decline of the dollar, noting that markets may be overly optimistic about a quick return to normalcy.

He added that there is a risk that markets are underestimating the scale of the energy price shock and its potential impact on the global economy.

Investors are currently focusing on the extent of the damage that may befall the global economy due to the energy shock, especially with physical oil prices trading above $140 per barrel, although futures contracts have returned to below $100.

The International Monetary Fund had lowered its global growth forecasts due to rising energy prices, warning that the world is already heading toward a more negative scenario with a sharper slowdown in growth.

In the worst-case scenarios, the Fund sees the global economy approaching the brink of recession, with average oil prices reaching $110 per barrel in 2026 and $125 in 2027.

On the other hand, the Japanese yen declined by 0.14% to 158.95 against the dollar, and it remains below its pre-war levels, affected by the rising costs of imported energy.

The rise in oil and natural gas prices also led markets to price in the possibility of both the European Central Bank and the Bank of England raising interest rates this year to curb inflation, while even a single interest rate cut by the Federal Reserve has become a matter of doubt.

Former U.S. Treasury Secretary Janet Yellen considered that one interest rate cut by the Fed is still possible this year, despite inflationary pressures resulting from supply shocks associated with the war, noting that the central bank will continue to closely monitor inflation expectations while keeping its options open.

Gold prices declined in European markets on Wednesday, giving up a four-week high recorded earlier in Asian trading due to the activity of correction and profit-taking operations, coinciding with pressure from the recovery of U.S. dollar levels in the foreign exchange market.

The levels of the American currency recovered while awaiting new developments regarding the talks between the United States and Iran, as intensive diplomatic efforts continue to push for a new round of peace negotiations following the stumbling of the previous round hosted by Pakistan.

Price overview

• Gold prices today: Gold metal prices fell by 1.0% to ($4,792.82), from the opening level of trading at ($4,841.30), and recorded a high of ($4,871.34), the highest since March 18.

• Upon price settlement on Tuesday, gold prices achieved an increase of 2.2%, in the first gain within the last three days, amid optimism regarding the U.S.-Iranian talks.

The U.S. Dollar

The dollar index rose on Wednesday by about 0.2%, holding above a six-week low of 97.97 points, on its way toward achieving its first gain in the last eight days, reflecting a recovery in the levels of the American currency against a basket of global currencies.

As we know, the rise in the levels of the American currency makes gold bullion priced in U.S. dollars less attractive to buyers holding other currencies.

Aside from buying operations from cheap levels, U.S. dollar levels are recovering as investors refrain from risk, awaiting the emergence of more positive indicators regarding the talks between the United States and Iran.

Diplomatic efforts

Diplomatic efforts continue, sponsored by Pakistan, Turkey, and some other countries, to bring viewpoints closer between the United States and Iran and to push toward engaging in a new round of negotiations, following the stumbling of the previous round held in the Pakistani capital, Islamabad, on Friday.

Media reports confirmed that a new round of negotiations between Washington and Tehran may be held in Islamabad during the coming days, with the Swiss capital, Geneva, proposed as a potential alternative for the second round of U.S.-Iranian negotiations.

U.S. President Donald Trump stated on Tuesday that talks to end the war with Iran may resume in Pakistan within the next two days, after the collapse of the previous round of negotiations, which prompted Washington to impose a blockade on Iranian ports.

U.S. interest rates

• According to the "FedWatch" tool of the CME Group: the pricing of the probabilities of keeping U.S. interest rates unchanged at the April meeting is currently stable at 99%, and the pricing of the probabilities of raising interest rates by about 25 basis points is at 1%.

• In order to re-price those probabilities, investors are closely following the release of more economic data from the United States.

Gold performance expectations

Edward Meir, an analyst at Marex, said: Gold prices are affected in the short term by news from the Middle East, amid hopes of the two countries entering into negotiations.

Meir added: If things worsen again, we may return to the pre-ceasefire pattern, where gold prices fell, the dollar rose, and stock prices fell.

SPDR Fund

Gold holdings at the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, increased on Tuesday by about 2.29 metric tons, bringing the total up to 1,049.48 metric tons, rebounding from a total of 1,047.19 metric tons "which is the lowest level since March 30."

The euro declined in European markets on Wednesday against a basket of global currencies for the first time in the last eight days against the U.S. dollar, giving up a six-week high due to the activity of correction and profit-taking operations.

This comes in conjunction with the American currency holding above its low levels, awaiting new developments regarding the talks between the United States and Iran, as intensive diplomatic efforts continue to push for a new round of peace negotiations following the stumbling of the previous round hosted by Pakistan.

With the current decline in global oil prices, indications are increasing that inflationary pressures on monetary policy makers at the European Central Bank are receding, which reduces the likelihood of raising European interest rates this year.

Price overview

• Euro exchange rate today: The euro fell against the dollar by 0.2% to ($1.1779), from today's opening price of ($1.1795), and recorded a high of ($1.1802).

• The euro ended Tuesday's trading up by 0.3% against the dollar, in its seventh consecutive daily gain, within the longest streak of daily gains this year, and recorded a six-week high of $1.1811, amid the possibility of holding a new round of U.S.-Iranian negotiations.

The U.S. Dollar

The dollar index rose on Wednesday by about 0.2%, holding above a six-week low of 97.97 points, on its way toward achieving its first gain in the last eight days, reflecting a recovery in the levels of the American currency against a basket of global currencies.

Aside from buying operations from cheap levels, U.S. dollar levels are recovering as investors refrain from risk, awaiting the emergence of more positive indicators regarding the talks between the United States and Iran.

Diplomatic efforts

Diplomatic efforts continue, sponsored by Pakistan, Turkey, and some other countries, to bring viewpoints closer between the United States and Iran and to push toward engaging in a new round of negotiations, following the stumbling of the previous round held in the Pakistani capital, Islamabad, on Friday.

Media reports confirmed that a new round of negotiations between Washington and Tehran may be held in Islamabad during the coming days, with the Swiss capital, Geneva, proposed as a potential alternative for the second round of U.S.-Iranian negotiations.

Global oil prices

Global oil prices fell on Wednesday by about 1%, continuing their losses for the second consecutive day, with signs appearing that Washington and Tehran continue to revive peace talks, despite the United States beginning a blockade of the Strait of Hormuz.

European interest rates

• Lagarde, President of the European Central Bank, said: The bank is ready to raise interest rates even if the expected rise in inflation is short-term.

• With the decline in global oil prices, the money market pricing of the probabilities of the European Central Bank raising European interest rates by about 25 basis points in April fell from 35% to 15%.

• Sources reported to Reuters that the European Central Bank is likely to begin discussing raising interest rates during the meeting of this month.

• In order to re-price the above probabilities, investors await the release of more economic data in the eurozone regarding the levels of inflation, unemployment, and wages.

The Japanese yen declined in Asian trading on Wednesday against a basket of major and minor currencies, resuming its losses that temporarily paused yesterday against the U.S. dollar, as the American currency holds above its low levels, awaiting new developments regarding the talks between the United States and Iran, as intensive diplomatic efforts continue to push for a new round of peace negotiations following the stumbling of the previous round hosted by Pakistan.

With the current decline in global oil prices, indications are increasing that inflationary pressures on monetary policy makers at the Bank of Japan are receding, which reduces the likelihood of raising Japanese interest rates later this month.

Price overview

• Japanese yen exchange rate today: The dollar rose against the yen by 0.2% to (159.06¥), from today's opening price of (158.77¥), and recorded a low of (158.72¥).

• The yen ended Tuesday's trading up by 0.4% against the dollar, in its first gain within the last four days, after a breakthrough in U.S.-Iranian talks.

The U.S. Dollar

The dollar index rose on Wednesday by about 0.2%, holding above a six-week low of 97.97 points, on its way toward achieving its first gain in the last eight days, reflecting a recovery in the levels of the American currency against a basket of global currencies.

Aside from buying operations from cheap levels, U.S. dollar levels are recovering as investors refrain from risk, awaiting the emergence of more positive indicators regarding the talks between the United States and Iran.

Diplomatic efforts

Diplomatic efforts continue, sponsored by Pakistan, Turkey, and some other countries, to bring viewpoints closer between the United States and Iran and to push toward engaging in a new round of negotiations, following the stumbling of the previous round held in the Pakistani capital, Islamabad, on Friday.

Media reports confirmed that a new round of negotiations between Washington and Tehran may be held in Islamabad during the coming days, with the Swiss capital, Geneva, proposed as a potential alternative for the second round of U.S.-Iranian negotiations.

Global oil prices

Global oil prices fell on Wednesday by about 1%, continuing their losses for the second consecutive day, with signs appearing that Washington and Tehran continue to revive peace talks, despite the United States beginning a blockade of the Strait of Hormuz.

Japanese interest rates

• The pricing of the probabilities of the Bank of Japan raising interest rates by a quarter of a percentage point in the April meeting is currently stable around 10%.

• In order to re-price those probabilities, investors await the release of more data on the levels of inflation, unemployment, and wages in Japan.