NEW YORK: The dollar edged higher against major peers on Thursday while remaining near a one-month low, reflecting expectations that the US economy will remain resilient, the Federal Reserve will hold rates steady this month and oil price swings may calm.
US unemployment benefits filings fell last week, suggesting continued labor market stability, while US retail sales increased marginally in June as lower gasoline prices weighed on receipts at service stations.
The US economy is less exposed to energy shocks than many of its peers, helping attract safe-haven flows into the dollar when oil prices rise, often at the expense of the euro and yen.
Oil prices rose 0.77 percent to USD85.59 on Thursday as escalating US-Iran conflict heightened energy supply concerns after Tehran asked Yemen’s Houthis to stand ready to disrupt shipping through the Red Sea.
“We have received two cooler than expected inflation reports this week, which should allow the Fed to punt on any potential rate hikes for now, which should weigh on the dollar,” said Tim Holland, chief investment officer at Orion.
“If things settle down in the Middle East and oil retraces its recent pop, we think talks of a Fed rate hike will fade and talk of peak inflation will pick up.”
The US dollar index, which tracks the currency against six peers, rose 0.17 percent to 100.62, hovering near its lowest since June 18 and on track for a weekly decline.
Chances for a Fed hike in July were 12 percent, versus a 45 percent implied probability at the start of the week. Markets still see even odds of at least a 25 basis-point increase in September, according to Fed funds futures prices via CME Group.
The euro slipped 0.11 percent to USD1.1450. Investors are closely monitoring European gas futures, which have risen to their highest levels since March, stoking concerns that higher energy costs could weigh on the euro zone economy and limit further appreciation of the euro.
The European Central Bank is seen as more hawkish than the Fed, with markets betting on two additional rate hikes into 2027 and some economists not ruling out a first move next week.
“Some ECB officials might actually be inclined to push more forcefully for another rate hike,” Carsten Brzeski, global head of macro at ING, said, after mentioning the renewed escalation in the Middle East.
Sterling held near a two-month high at USD1.3510, last down 0.21 percent after economic data, with investors expecting that Britain’s incoming prime minister will pick a fiscally conservative finance minister.
The yen hovered near multi-decade lows, with attention on potential moves by Japan’s Government Pension Investment Fund after Finance Minister Katsunobu Kato said last week the government wants a “substantial” increase in domestic asset investment.
Analysts said the GPIF has the greatest capacity among Japanese investors to influence the forex market. GPIF conducts a strategy review every five years and completed its latest one in 2025. However, it can still adjust its holdings within its target allocation bands.