NEW YORK: The dollar was slightly higher on Tuesday, but off a two-month high hit earlier in the day as investors weighed another decline in oil prices against the possibility of more rate hikes from the Federal Reserve.
Oil prices were down more than 2 percent to a two-week low following Iran’s proposal to reopen the Strait of Hormuz within seven days if the US eases military pressure.
In addition, Iran and the United States hinted at the prospect of reviving negotiations to end their conflict, with the presidents of both countries due at the UN General Assembly in New York.
“Obviously, the big bogeyman for everybody is inflation, but it’s all been about why is there so much inflation?” said Juan Perez, senior director of trading at Monex USA in Washington.
“It’s all due to the Iranian conflict going on so long, the escalation. So this is where markets are right now, and this is why you’re seeing the dollar not really have any clear direction.”
US President Donald Trump will use the UN General Assembly address to argue that the war with Iran prevented Tehran from obtaining a nuclear weapon and to tout what he sees as progress toward peace and a global order increasingly aligned with American interests, according to a White House official.
The ongoing US-Israeli war on Iran had sent oil prices higher and fanned inflation worries, prompting rate hikes from several central banks in recent days, including the Federal Reserve.
Recent comments from Fed officials in the wake of its policy decision have also flagged the possibility of more rate increases if inflation does not cool.
Federal Reserve Bank of Boston President Susan Collins wrote on Tuesday in a LinkedIn post that she supported last week’s central bank interest rate increase amid the risks that future inflation will be above its 2 percent target.
The dollar index, which measures the greenback against a basket of currencies, rose 0.06 percent to 100.48, with the euro down 0.08 percent at USD1.1453. The dollar index had risen as much as 0.25 percent on the day to 100.66, its highest since July 30, while also falling as much as 0.11 percent.
Markets are roughly split on whether the Fed will raise rates at its October meeting, pricing in a 53.1 percent chance for a hike of at least 25 basis points, down from 57.6 percent in the prior session, according to CME FedWatch.
Other Fed officials speaking on Tuesday include Federal Reserve Bank of New York President John Williams, Federal Reserve Vice Chair Philip Jefferson and Federal Reserve Bank of Richmond President Thomas Barkin.
Against the Japanese yen, the dollar weakened 0.06 percent to 157.26.
Traders were also weighing whether the Bank of Japan would raise rates quickly enough to narrow the gap with its global peers.
Sterling weakened 0.06 percent to USD1.3357 and was on track for a second straight daily decline, and sixth in the past seven.
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