The US dollar fell against all major currencies on Thursday. Although it stabilized slightly today, the dollar continued its decline against the New Zealand dollar, influenced by comments from Reserve Bank of New Zealand Governor Anna Brehman. The bank stated that to avoid runaway inflation, the pace of interest rate hikes may be faster than previously expected.



Meanwhile, oil prices fell further. Reports indicate that the United States and Iran have reached an agreement on a 60-day memorandum of understanding, which includes the full restoration of navigation in the Strait of Hormuz, the lifting of US sanctions on Iranian ports, and Iran's commitment to cease developing nuclear weapons. US President Trump has been informed of the details of this final agreement but stated that he needs several days to consider it.

The signing of this memorandum will be the most significant breakthrough in the conflict between the two sides. Once the Strait of Hormuz is fully reopened to navigation, the US dollar and oil prices will likely decline further.

US personal consumption expenditures (PCE) data for April confirmed a renewed rise in inflation, but the dollar remained weak. The overall PCE price index rose 3.8% year-on-year from 3.5%, while the core PCE price index rose slightly to 3.3% year-on-year from 3.2%, both figures meeting market analysts' general expectations.

Given that the PCE data aligns with the trends previously reflected by the Consumer Price Index (CPI) and Producer Price Index (PPI), the market is focusing more on news regarding the US-Iran memorandum of understanding, thus slightly reducing its bets on a Fed rate hike. Currently, the market has fully priced in a 25 basis point rate hike by the Fed, and the probability of a rate hike before the end of the year has dropped to 60%.

However, the market generally anticipates that the Federal Reserve will continue to raise interest rates, reflecting investors' concerns about inflation. Even if the memorandum is formally signed, current oil prices are still higher than the same period last year, and coupled with a 6% increase in the producer price index, it means that it will take time for inflation to fall back to the Fed's 2% target level, which will also limit the subsequent decline of the dollar.

Tokyo's core inflation is slowing, but the Bank of Japan still leans towards raising interest rates.

The core consumer price index in Tokyo, Japan, fell to 1.3% year-on-year from 1.5%, marking the fourth consecutive month below the Bank of Japan's 2% inflation target. However, this data did not alleviate market expectations of an imminent interest rate hike by the Bank of Japan. Affected by both high oil prices and a continued weakening yen, Japanese consumer prices are expected to accelerate again in the coming months.

The market currently believes there is a 70% probability that the Bank of Japan will raise interest rates at its upcoming policy meeting. If Japan hopes to prevent further depreciation of the yen, a rate hike may be necessary. Although the risk of yen exchange rate intervention remains high, the Bank of Japan will likely initiate another round of consecutive rate hikes to achieve the desired effect.

The S&P 500 and Nasdaq Composite hit new record highs, and gold prices rebounded after breaking away from the 200-day moving average.

In the US stock market, the Dow Jones Industrial Average closed virtually flat, while the S&P 500 and Nasdaq both hit record highs, with the Nasdaq rising nearly 1%. News of a US-Iran agreement and the extension of the ceasefire boosted market risk appetite; however, the core driver of this round of US stock market gains remains market optimism regarding the artificial intelligence sector.

The expectation of a ceasefire also fueled a rebound in gold prices. Lower US Treasury yields, a weaker dollar, and a cooling of expectations for a Fed rate hike reduced the opportunity cost of holding gold, leading to a rebound in prices from near the 200-day moving average.