NEW YORK: The dollar dipped for a second straight session on Thursday as the US and Iran carried out renewed attacks, while a stable reading on the labor market kept the focus on potential inflation pressures.
Iranian armed forces launched attacks on US military infrastructure in neighbouring Gulf states following US strikes on Iran’s southern coastal and eastern provinces, further straining a three-week-old ceasefire agreement.
Oil prices eased from earlier highs, however, with US crude last down 0.99 percent at USD72.79 a barrel and Brent at USD77.56 per barrel, down 0.59 percent on the day, as markets assessed the possibilities for continued escalations in the Middle East war.
The dollar index, which measures the greenback against a basket of currencies, shed 0.09 percent to 100.93, with the euro up 0.17 percent at USD1.1434.
“It’s safe to say there’s a lot of confusion,” said Erik Bregar, director of FX and precious metals risk management at Silver Gold Bull in Toronto.
“You could argue the sideways price action, the market is trying to decipher what reality is, but we’re going to trade off the tone of the next headline, sadly.” The minutes from the Federal Reserve’s June 16-17 meeting, the first under new Fed Chairman Kevin Warsh, showed concern about high inflation mounted among policymakers, and a few participants saw a case to raise interest rates right away. New York Fed President John Williams said on Thursday that despite the resumption of hostilities in the Middle East, he was not looking for a sustained rise in energy prices over the remainder of the year.
Expectations for a rate hike of at least 25 basis points at the Fed’s July 28-29 meeting eased back to 24.1 percent from 31 percent in the prior session, but up from 18.2 percent a week ago, according to CME Group’s FedWatch tool. For the September 15-16 meeting, markets are pricing in a 63.5 percent chance of a hike, down slightly from the 66.6 percent on Wednesday but an increase from the 54.1 percent a week earlier.
European Central Bank policymakers gathering last month were presented with projections showing inflation staying above target into next year despite higher interest rates, accounts of the meeting showed on Thursday.
On the US economic front, weekly initial jobless claims dipped by 2,000 to 215,000, below the 218,000 estimate of economists polled by Reuters, indicating the labor market remains on stable footing.
Against the Japanese yen, the dollar weakened 0.15 percent to 162.31. The Bank of Japan said the Iran war is likely to goad more firms to raise prices later this year, signaling caution over mounting inflationary pressures that could bolster the case for further rate hikes.
Sterling strengthened 0.05 percent to USD1.3391 after hitting a fresh three-week high of USD1.343.