NEW YORK: The dollar extended gains against major currencies on Wednesday, as traders focused on global inflation trends while sceptical of a near-term de-escalation in the Iran war.
While reports said the US sent a 15-point plan for discussion to Tehran, Israel and Iran exchanged airstrikes.
President Donald Trump said the US was making progress in talks with Iran, but Tehran denied that direct negotiations have taken place, keeping investors on edge.
The US dollar index, measuring the greenback’s strength against a basket of six currencies, rose 0.23 percent to 99.41. The euro slipped 0.19 percent against the dollar to USD1.1585, while the British pound fell 0.19 percent to USD1.3387.
Sterling found little support earlier from data showing British consumer price inflation held at an annual rate of 3 percent in February, unchanged from January’s rate, with inflation broadly expected to rise as the war in the Middle East pushes up prices.
“The fact that the dollar is staying strong suggests that the FX market is taking a slightly different view than equities and bonds,” said Shaun Osborne, chief FX strategist at Scotiabank in Toronto.
“If we were looking at a real off ramp being found here, then we would see some of this premium in the dollar start to correct,” Osborne added.
That contrasts with equities and oil where investors appear optimistic that a resolution may be in sight. Stocks advanced on Wednesday, with the S&P 500 up 0.8 percent, and global crude oil prices were last down 3.8 percent at USD100.54 per barrel.
Bond markets rebounded after a volatile week, with the yield on US 10-year Treasury notes down 5.6 basis points at 4.336 percent.
Against the yen, the US dollar rose 0.23 percent to 159.05 yen. Minutes from the Bank of Japan’s January policy meeting showed many board members saw the need to keep raising interest rates without specifying the pace.
The Australian dollar was last down 0.39 percent at USD0.6966. Inflation data for February showed a 3.7 percent rise prior to the start of the Iran war, slightly lower than expected by analysts.
Although markets still anticipate no change in US interest rates this year, expectations of policy tightening are rising.
Fed funds futures now imply a small chance of a 25-basis-point hike at the Federal Reserve’s December meeting, compared to a cut expected a week ago, CME Group’s FedWatch tool shows.
“We are seeing early signs of a more hawkish tilt from central banks outside the Fed, particularly the ECB and BOJ, which should begin to narrow yield differentials at the margin,” said Joel Kruger, market strategist, LMAX Group in London.
In cryptocurrencies, bitcoin rose 1.77 percent to USD71,300.33, while ether was up 1.31 percent at USD2,176.02.
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