NEW YORK: The dollar edged higher on Wednesday as concerns about a further escalation in the Middle East conflict supported demand for the US currency, while data showed US consumer prices rose moderately in February.
Investors remain on edge as the Middle East conflict threatens to freeze global energy trade and ignite a price shock.
Iran’s military command said on Wednesday the world should be prepared for oil to hit USD200 a barrel, as three more ships came under attack in the blockaded Gulf.
Oil prices rebounded on Wednesday as markets doubted whether the International Energy Agency’s plan for a record release of oil reserves could offset potential supply shocks.
“The war in Iran and the impact on energy prices is still the predominant focus for FX,”
Kyle Chapman, FX markets analyst at Ballinger Group in London, said.
“Optimism around a near-term end to the war appears to be fading again as Iran is striking vessels and attempting to mine the Strait of Hormuz,” Chapman said.
The US military “eliminated” 16 Iranian mine-laying vessels near the Strait ?of Hormuz on Tuesday, the US Central Command said in a statement, as President Donald Trump warned that any mines laid in the Strait by Iran must be removed immediately.
The dollar, which has risen nearly 2 percent against the euro since February end - was 0.2 percent higher against the euro on Wednesday.
Markets have been pricing in rate hikes from the European Central Bank over the past week, although policymakers said the central bank should take its time to reassess policy and stay on its present course for now.
Against the yen, the dollar was 0.3 percent higher at 158.52 yen.
Data on Wednesday showed US consumer prices rose moderately in February as rents maintained a steady pace of increases, though households paid more for gasoline and at the supermarket.
The in-line report is cast in shadow by the US-Israeli war against Iran, which has driven a large rise in crude-oil prices and sparked concern about inflation down the road.
“(The report) is not relevant at the moment … the current price action, the move in rates we’ve had recently is much more of a forward-looking story,” said Shahab Jalinoos, head of G10 FX research at UBS.
“What would happen if energy prices globally stay elevated, what would be the spillover effects from that, how would that feed through into core CPI as well as headline CPI? These are the questions the market is thinking about,” Jalinoos said.
The Australian dollar was up 0.8 percent on the day at USD0.7174, supported by growing expectations for the Reserve Bank of Australia to hike rates next week.
The risk-sensitive currency faring well, even as market volatility spiked and positioning has been crowded, was notable, Jalinoos said.
“We have been Aussie bulls so we’re not unhappy about it, but it is a surprise,” he said.
The British pound rose 0.1 percent to USD1.3427 in a choppy session that saw traders weighed fears of an oil supply shock. Oxford Economics estimated that UK inflation could be 0.4 percentage points higher if shipping through the Strait of Hormuz, a crucial artery for global oil flows, was disrupted for up to two months.
On Wednesday, leading cryptocurrency bitcoin rose 1 percent to USD70,871 but remained close to the multi-year low touched in early February.
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