US-Iran MOU Signed, Fed Policy Overhaul Leaves Markets Guessing on DXY Trajectory

US-Iran MOU Formalizes Conflict Resolution Framework Amid Fed Policy Uncertainty

The Asia-Pacific trading session was dominated by the formal signing of the US-Iran memorandum of understanding (MOU), marking a pivotal step in resolving Middle East tensions. President Trump and Iranian President Pezeshkian separately signed the 14-point agreement, which includes provisions on missile capabilities, uranium enrichment, and Hormuz Strait fees. Oil prices dipped marginally as markets had already priced in the outcome, while gold recovered some ground following Wednesday’s Fed-driven selloff.

Federal Reserve Vice Chair Philip Warsh’s policy overhaul raised more questions than answers, leaving traders uncertain about the central bank’s future path. The Fed’s June hold, coupled with signals of potential rate hikes, split analyst opinions, with December hike odds hovering near 50%. CITIC Securities projected a full-year hold, citing political and inflation crosswinds. The DXY faced pressure amid the hawkish rhetoric, though broad dollar softness supported modest gains in NZD/USD after New Zealand’s Q1 GDP beat forecasts at 1.5% y/y.

Japan’s Chief Cabinet Secretary Kihara reiterated concerns over yen weakness burdening households but stopped short of signaling fresh intervention, leaving USD/JPY steady around 160.50. Meanwhile, China’s National Development and Reform Commission (NDRC) launched a third trade-in fund tranche of 62.5 billion yuan, aimed at bolstering consumer demand amid weak retail data. The move underscored ongoing stimulus pressure, though its immediate market impact remained muted.

Equity markets reacted positively to the MOU signing and softer dollar backdrop. Japan’s Nikkei 225 breached 71,000 for the first time, hitting 71,050, while the Topix climbed to 4,069. The rally reflected optimism over geopolitical de-escalation and accommodative monetary policy risks. However, Apple’s warning of unavoidable price hikes due to memory chip shortages added a note of caution, with AAPL shares slipping post-Fed.

Risk sentiment remained cautiously optimistic, with the DXY’s trajectory hinging on Fed clarity. Traders are likely to monitor upcoming CPI prints, Fed communications, and geopolitical developments for directional cues. The PBOC’s USD/CNY reference rate of 6.8130 (vs. estimate 6.7752) highlighted yuan stability amid broader dollar weakness.

Disclaimer: This analysis is for informational purposes only and should not be construed as financial advice. Trading involves significant risk of loss.