Dollar slips as US-Iran deal hopes sink oil, with midterms next

The dollar opened November on the back foot as signs of progress in US-Iran diplomacy pushed oil lower and lifted risk appetite. A stronger-than-expected US factory survey did little to change the mood, with traders turning to Tuesday's US midterm elections.

Our last recap covered the dollar's October gain and hawkish Fed talk. Since then, the story has shifted to Iran, oil and US politics.

What moved and why

The main driver was Iran. investingLive reports that Iranian President Pezeshkian said the Supreme Leader has granted the government some authority on dialogue, according to ISNA. He added that war "will not be in anyone's interest." investingLive described a risk-on reaction, with oil and the dollar moving lower.

Markets read the comments as a sign of greater flexibility in talks with Washington, investingLive notes, though it stressed that strategic decisions still rest with the Supreme Leader. Later, investingLive reported that Tehran and Washington are said to be nearing a preliminary agreement to reduce tensions, citing ILNA and the Al-Sharara news agency. That source said the coming hours will be decisive.

Sterling benefited. Investing.com reports that the pound gained as the dollar slipped on Iran diplomacy bets. Earlier in the day, Investing.com said the dollar had steadied ahead of the midterms while the euro digested a Fitch outlook downgrade.

The reference point

The ECB reference rates for Monday, November 2, show a softer dollar against most majors versus the October 30 fixing:

• EUR/USD fixed at 1.1216, up 0.39% from 1.1172.
• GBP/USD fixed at 1.3419, up 0.15%.
• USD/CHF fixed at 0.8196, down 0.40%.
• USD/MXN fixed at 18.72, down 1.0%.
• USD/JPY was the exception, fixing at 157.90, up 0.41%.

The commodity currencies lagged. AUD/USD fixed at 0.7008 (down 0.23%) and NZD/USD at 0.5627 (down 0.17%). USD/CAD was nearly flat at 1.3974. You can follow the euro on the EUR/USD chart.

Data in the news

United States

US manufacturing beat forecasts. The ISM manufacturing PMI rose to 55.5 in October against a 54.5 estimate, investingLive reports. Prices paid eased to 75.2 from 77.9, below the 77.5 expected. The S&P Global final manufacturing PMI was weaker at 54.9, down from a 56.0 preliminary reading, according to investingLive.

Construction spending fell 1.9% in September versus a 0.3% estimate, investingLive reports, though August was revised up to 2.0%.

Canada

Canada's S&P Global manufacturing PMI dropped to 49.6 from 51.5, its first reading below 50 this year, per investingLive. Investing.com reports that the loonie slipped from a six-week high as the oil retreat offset the weaker US dollar. Track it on the USD/CAD chart.

Yen, gold and the ECB

UBS argues that still-negative Japanese real rates should continue to support USD/JPY, Investing.com reports. On gold, Investing.com carried an analyst view on which safe-haven currencies investors may look at if the metal breaks lower.

At the ECB, Boris Vujčić gave a speech on Europe's strengths in a fragmenting world.

In crypto, Investing.com noted that bitcoin was reeling from a heist. Our sister site covers how Binance reopened withdrawals after the hack.

What to watch next

1. US-Iran talks. The Al-Sharara source cited by investingLive said the coming hours will be decisive for a preliminary agreement. Oil and the dollar have been reacting to each headline.
2. US midterms on Tuesday. investingLive reports that Democrats need a net gain of three House seats to reach a majority, while Republicans hold the Senate 53-47.
3. Oil and the loonie. With Canada's PMI in contraction, the Canadian dollar remains tied to crude.