The US dollar remained close to a one-month high on Wednesday as renewed tensions in the Middle East boosted demand for safe haven assets, with investors turning their attention towards the Federal Reserve’s interest rate decision later in the day.
Currency movements were largely muted during early Asian trading as investors stayed cautious ahead of the Federal Open Market Committee (FOMC) meeting. Markets are currently pricing in a 33% chance of a 25-basis-point rate hike.
Adding to market uncertainty, oil prices moved higher after the US military said it had intercepted multiple ballistic missiles launched by Iran towards US forces in the Middle East, raising concerns over potential inflationary pressures.
The dollar index, which measures the greenback against a basket of major currencies, held firm at 101.43.
The euro remained under pressure near a one month low at US$1.1386, having fallen 0.3% so far this month, while sterling slipped 0.06% to US$1.3282, hovering near its weakest level since July 1.
“I still think that the Fed will need more indication on how long the inflation risk is going to play out,” said Fabien Yip, a market analyst at IG, who expects the central bank to keep interest rates unchanged on Wednesday.
“The US dollar will be relatively strong because of the ongoing uncertainties in the Middle East, but at the same time, if you look at the central bank policies, it does look like the US is in a better position to maintain a hawkish stance, relative to other central banks,” he added.
Meanwhile, the dollar edged higher against the yen, trading at 163.88, keeping pressure on the Japanese currency which has continued to struggle near 40-year lows.
Hirofumi Suzuki, chief FX strategist at SMBC, said the Fed’s policy decision and Chair’s press conference could provide further support for the dollar.
“There is a possibility that the FOMC’s policy decision and the Chair’s press conference could trigger a further strengthening of the dollar, pushing USD/JPY to 164,” Suzuki said.
He added that the likelihood of foreign exchange intervention by Japanese authorities remained significant as officials continued to warn against excessive yen weakness.
“In terms of timing, if the yen depreciates further following the BOJ’s Monetary Policy Meeting, that could provide a trigger for intervention,” Suzuki said.
Elsewhere, the Australian dollar was little changed at US$0.6973 ahead of domestic inflation data, while the New Zealand dollar declined 0.09% to US$0.5782.
Reuters
