NEW YORK: The dollar hovered near a seven-month low against the yen on Wednesday as oil prices climbed above USD100 a barrel amid an escalating conflict in the Middle East, while investors positioned for central bank meetings next week.
The US currency has come under pressure largely due to the yen’s sharp gains over the past week and shifting expectations ahead of policy decisions from the Federal Reserve and Bank of Japan.
The dollar was down 0.4 percent at 153.40 yen, not far from Tuesday’s seven-month low of 152.89.
“The main story here is that the US policy premium is putting a cap on the dollar’s advance and we have the yen strengthening with the support of the US Treasury,” said Kevin Ford, FX & Macro strategist at Convera.
“I think there’s a momentary disconnect between rate expectations and oil, which provided support in terms of trade back in March for the US dollar.”
The dollar trimmed losses against major peers after the US Treasury Department said it would triple the size of its long-dated buyback operation on Thursday, purchasing up to USD6 billion in bonds.
Against the Swiss franc, the dollar edged up 0.02 percent to 0.81 after earlier losses.
The dollar index, which tracks the US currency against six others, was flat at 98.80, nearing its lowest in almost two weeks.
Iranian-backed Houthis in Yemen launched strikes on several Saudi Arabian cities, deepening the involvement of a key US ally in the conflict. American forces also struck multiple Iranian oil tankers, while Tehran hit a US base in Jordan.
Brent crude futures rose 3.5 percent, topping USD100 a barrel for the first time since late July, weighing on global markets ahead of US inflation data due on Friday and central bank meetings next week in the US and Japan.
The euro rose 0.05 percent to USD1.1628, nearing a two-week high, ahead of a widely expected rate rise from the European Central Bank on Thursday.
OCBC strategists said the latest Middle East escalation kept Federal Reserve policy implications from higher energy prices in focus, particularly after last week’s strong US payrolls report revived expectations of a rate hike next week.
The yen remained in focus after rising 4 percent so far this month, challenging the economics of the carry trade, in which investors borrow cheaply in yen to invest in higher-yielding assets elsewhere.
The Japanese currency has strengthened broadly, not only against the dollar but also versus the euro and sterling, as well as against popular carry-trade currencies such as the Mexican peso and Turkish lira.
Gains have been driven by expectations of faster Bank of Japan policy tightening, prospects for repatriation flows from Japanese investors and pressure from Washington for a stronger yen.
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