The dollar ticked higher on Wednesday as renewed Gulf tensions revived safe-haven demand, while the euro slipped as investors weighed US inflation data due later in the session for clues on the Fed's next move. The euro fell 0.05% to $1.1536, pulling back from a near two-month high hit on Monday.
Gulf tensions revive safe-haven demand
Oil prices edged up after the United States and Yemen's Iran-aligned Houthis reported separate attacks on shipping on Tuesday, with Tehran saying the Strait of Hormuz would stay closed unless Washington accepts its conditions. Investors buy the safe-haven dollar when concerns about the economic impact of an energy shock from the Iran war intensify.
Analysts said Friday's soft US jobs data did not weigh heavily on the greenback, since markets expect inflation to drive the next Federal Reserve rate move. Fed Bank of Chicago President Austan Goolsbee said he was more concerned about too-high inflation than labor-market weakness. Fed funds futures imply a 50% chance the central bank leaves rates unchanged at its two-day meeting ending September 16, according to CME Group's FedWatch tool. The US dollar index rose 0.05% to 99.85, which measures the greenback against six currencies.
Gas prices pressure the euro
Strong euro zone economic figures have struggled to support the euro, however, as investors assess the impact of natural gas prices above €60. Gas has a greater influence on euro zone inflation than oil because of its central role in heating, power generation and industry, making it a key focus for the European Central Bank.
Yen eyes possible BoJ divergence
US Treasury yields and the removal of Fed tightening bets will be crucial to support the yen, while a September rate hike from the Bank of Japan would underscore its intention to press ahead with policy normalization. The yen weakened 0.05% to 159.38 against the dollar, its softest level of the month despite recent joint intervention by US and Japanese authorities.
According to Reuters: "intervention triggered a sharp squeeze of speculative short yen positions", said Lee Hardman, senior currency economist at MUFG. He added that without a change in fundamentals, speculators would likely rebuild short yen positions given stable conditions supportive for carry trades.
The New Zealand dollar weakened 0.36% to $0.5860 after Prime Minister Christopher Luxon said he had won a confidence vote of ruling party lawmakers.
Sources: Investing.com, Yahoo Finance
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