Dollar Slides as Oil Steadies Amid Strained Ceasefire

The dollar weakened this week as easing war fears reduced demand for safe-haven assets, while sterling climbed above $1.3420. The S&P 500 moved higher on Thursday alongside gains in Amazon and Constellation Brands, while UK equities slipped with pressure on rate-sensitive sectors. Oil steadied near $96.57 early Friday despite supply concerns, and gold held firm near $4,765 as expectations for US rate cuts supported prices.

Equities

The FTSE 100 edged 0.1% lower to 10,603.5 points at Thursday’s close, while the FTSE 250 fell 1% after a strong rally the previous session. Gains in energy shares limited losses as oil prices rose on doubts over the durability of a Middle East ceasefire, particularly amid continued Israeli strikes on Lebanon. Bond yields also moved higher, with the UK two-year gilt yield climbing to 4.221%, putting pressure on rate-sensitive sectors such as housebuilders.

Within UK equities, the FTSE 350 energy index rose 2% on Thursday as stronger oil prices supported major producers. Ceres Power Holdings closed 6.2% lower after Peel Hunt downgraded the stock to “sell” from “hold”. Standard Life and Croda International both fell more than 3% as their shares traded ex-dividend. Housing-related stocks remained under pressure after survey data showed a cooling property market, reflecting weaker demand and rising mortgage costs.

In the United States, markets moved higher on Thursday as sentiment improved on renewed Middle East peace discussions. The Dow Jones Industrial Average closed 0.58% higher at 48,185.80, the S&P 500 gained 0.62% to 6,824.66, and the Nasdaq Composite rose 0.83% to 22,822.42. The S&P 500 also moved back above its 100-day and 200-day moving averages over the past two sessions, indicating a recovery from earlier weakness.

Amazon shares closed 5.6% higher on Thursday after its chief executive said artificial intelligence services within its cloud division are generating more than $15 billion in annualised revenue. Constellation Brands climbed 8.5% after reporting a smaller-than-expected decline in fourth-quarter sales, while Applied Digital fell 8% as its quarterly net loss widened.

Sector performance in the US was mixed, with consumer discretionary stocks rising and energy shares falling despite a 3.66% increase in crude prices. Trading volumes remained below recent averages, while market volatility eased to its lowest level since the conflict began.

Forex & Commodities

The US dollar weakened through the week and held steady early on Friday, leaving it on course for its largest weekly drop since January as traders reduced safe-haven positions. Sterling strengthened during the week and traded above its 200-day moving average at $1.3420, while the euro also pushed higher to $1.1690, breaking a key technical level. The Australian dollar rose to just above $0.7000 and the New Zealand dollar to $0.5847, both supported by improved risk sentiment.

The Japanese yen edged slightly weaker to 159.2 per dollar early on Friday and remained under pressure against other currencies. China’s yuan strengthened and is heading for its largest weekly gain in over a year, trading at its firmest levels since 2023. South Korea’s central bank left interest rates unchanged on Friday, with the won holding around 1,480 per dollar after recovering from weaker levels earlier in the week.

Attention is on weekend talks in Islamabad between the United States and Iran, where officials are expected to discuss extending the ceasefire. Investors are also awaiting US inflation data later on Friday, which could influence expectations for Federal Reserve policy. Recent figures showed the Fed’s preferred inflation measure at 2.8% year-on-year, in line with expectations.

Spot gold held steady early on Friday at $4,765 per ounce and is set for a third consecutive weekly gain, supported by expectations for lower US interest rates. However, prices remain below levels seen at the start of the conflict, having fallen around 10% since late February.

Oil prices rose early on Friday, with Brent crude trading at $96.88 per barrel and US crude at $98.65. Despite the latest gains, both benchmarks remain sharply lower over the week as hopes for a ceasefire raised expectations that flows through the Strait of Hormuz could resume.