NEW YORK: The dollar was barely higher on Monday as hostilities in the Gulf escalated ahead of the monthly US inflation report, while the yen slid following a Reuters report that Japan had no immediate plan to change state pension funds’ asset allocations.
President Donald Trump said on Monday the US was reinstating a naval blockade on Iran. Trump said the process would begin immediately, without elaborating.
The dollar index, which tracks the currency against six peers, was last up 0.04 percent at 101.11. The US currency rose earlier in the session along with oil prices but later lost ground. The euro was off 0.1 percent at USD1.1402 and sterling was down 0.24 percent to USD1.3370, while the Australian dollar weakened 0.27 percent to USD0.6931.
US and Iranian forces exchanged heavy missile and drone assaults at the weekend, with Tehran targeting US facilities in states across the Gulf on Sunday and saying it had again closed the vital Strait of Hormuz shipping route.
Oil prices rose, with Brent crude futures up 4.39 percent at USD79.32 a barrel.
Inflation risks are likely to remain in focus with the release of US CPI data on Tuesday, PPI gauges the following day, and Fed Chair Kevin Warsh’s testimony before the House and Senate, Westpac analysts wrote in a research report.
“Investors are balancing renewed geopolitical uncertainty against a reluctance to take on meaningful risk ahead of two major catalysts on Tuesday: the latest US inflation report and Fed Chair testimony,” said Joel Kruger, market strategist at LMAX Group in London.
“Those events should provide much clearer direction for markets and are likely to trigger a pickup in volatility after today’s cautious trade.”
Fed funds futures are pricing in about 30 basis points of rate hikes by the US central bank this year, according to LSEG data. “I think the bar to a July rate decision by the Fed is very high,” said Marc Chandler, chief market strategist at Bannockburn Capital Markets in New York. “Just given the volatility of the events in the Middle East, I think that the market doesn’t have much conviction here, and that’s leaving the currencies mostly sideways.”