The US dollar held near a two-month high on Wednesday as expectations of further interest rate hikes supported the greenback, while easing oil prices and hopes of progress in US-Iran talks kept investors cautious.
The euro stood at US$1.1446 in early trading, close to its weakest level since late July, while sterling traded at US$1.3337. The dollar index, which measures the US currency against six major currencies, was at 100.56.
Recent rate hikes and hawkish signals from major central banks have taken centre stage in currency markets as the US-Israeli conflict with Iran pushes up oil prices and fuels inflation concerns.
Investors are increasingly anticipating further tightening from central banks, with Federal Reserve officials signalling the possibility of additional hikes if inflation remains elevated.
“The dollar’s support from rates looks durable, but futures already price more tightening than the Fed’s own projections, so the dollar now needs the data to confirm it,” said Kieran Williams, head of Asia FX at Intouch Capital Markets.
Oil prices have eased on hopes that diplomatic efforts at the United Nations General Assembly could help resolve the Middle East conflict. Brent crude was at US$99.22 a barrel, although prices remain 37% higher since the conflict erupted at the end of February.
US President Donald Trump warned that he could “annihilate” Iran if there is no deal to end the war, while also suggesting an agreement could come soon amid diplomatic efforts at the UN.
“The good news is that oil prices have moderated somewhat from the highs but the path forward remains unclear given the lack of clarity around a possible resolution of the conflict,” said Michael Wan, a currency analyst at MUFG.
Markets are also awaiting a high-stakes meeting between Trump and Chinese President Xi Jinping, with investors watching for signs of stability in relations between the world’s two largest economies.
The Japanese yen stood at 157.55 per US dollar, with traders remaining alert to the possibility of intervention after markets viewed the Bank of Japan’s rate hike last week as insufficiently hawkish.
Two dissenting votes at the BOJ and the absence of a clear signal for faster tightening have raised doubts over how quickly the central bank will raise rates, particularly after the Federal Reserve increased rates by the same amount two days earlier and signalled further hikes.
Japanese markets are closed for a holiday, with analysts viewing the thin trading conditions as potentially providing an opportunity for authorities to intervene if necessary.
“The BOJ hike didn’t narrow the (yield) gap because the Fed hiked by the same amount two days earlier, so the lean is still higher,” Williams said.
“160 (per US dollar) remains the risk, but officials have reportedly moved away from telegraphing intervention and from any fixed level, so the cap could come earlier and in other forms.”
Reuters
