Dollar steadies following US strikes on Iran and ahead of inflation data
- The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, edged up 0.01% to 100.02
The dollar held steady after US strikes on Iran, as investors awaited key US inflation data to gauge the Federal Reserve's policy path amid global economic uncertainties and central bank actions.
- US strikes on Iran and market reactions.
- Upcoming US inflation data and Fed policy.
- Bank of Japan's rate hike prospects and yen.
- European Central Bank's expected rate hike.
TOKYO: The dollar held steady against major peers on Wednesday after the United States launched strikes against Iran, while investors awaited key US inflation data for clues on the Federal Reserve’s policy path.
The U.S. military on Tuesday launched strikes against Iran after President Donald Trump said Tehran had shot down a U.S. Apache helicopter in the Strait of Hormuz, throwing a wrench into prospects of peace between the two countries and further straining a fragile ceasefire. Trump, though, downplayed the helicopter incident, telling The Wall Street Journal it “wasn’t a big deal” and stressed that “the pilot is fine.”
Despite such events and the lapse in the ceasefire over the weekend, “we continue to assess the war to be on a de-escalatory path,” said Harry Ottley, economist at Commonwealth Bank of Australia, in a note.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, edged up 0.01% to 100.02
The euro was down 0.05% at $1.1537 while sterling lost 0.04% to $1.337.
The U.S. economy is seen as relatively insulated from energy shocks compared with its peers, a factor that has supported safe-haven demand for the dollar during the Iran war, while weighing on the euro and Japanese yen.
Meanwhile, a Bank of Japan rate hike at the June 16 policy meeting is now almost fully priced in, meaning it is unlikely on its own to trigger a significant reversal in yen weakness if delivered.
“It’s going to take some hawkish commentary from Governor (Kazuo) Ueda that signals the BOJ could bring forward its next hike from December to September - with the possibility of a third hike before year-end,” said Tony Sycamore, market analyst at IG, in a note. “Without that or something similar, the Ministry of Finance will likely need to pull out its cheque book again to defend the currency.”
The Japanese yen drifted 0.03% lower against the greenback to 160.38 per dollar, continuing to hover around the 160 level widely seen as a line in the sand for potential official intervention.
Data on Wednesday showed Japan’s wholesale prices surged 6.3% in the year to May, exceeding expectations and highlighting mounting price pressures from the Middle East conflict.
US inflation data in spotlight
Later in the day, the U.S. will release consumer price index data for May, seen as crucial in gauging whether the Fed may lean toward rate hikes later this year following last week’s stronger-than-expected job data.
“Markets will be watching whether the impact of persistently high oil prices spills over into services and other sectors. If rising inflationary pressure comes into sharper focus, the dollar is likely to attract further buying,” said Akihiko Yokoo, senior analyst at Mitsubishi UFJ Bank, in a note.
Solid growth and persistent inflation are likely to keep expectations tilted toward further U.S. rate hikes, even as any potential U.S.-Iran deal could offer some relief.
Markets will also be watching the European Central Bank’s upcoming policy meeting due on Thursday, where a 25-basis-point rate hike is widely expected.
The risk-sensitive Australian dollar edged 0.1% lower versus the greenback to $0.7021. The kiwi lost 0.17% versus the greenback to $0.5812.
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