By Satoshi Sugiyama
TOKYO, July 23 (Reuters) – The dollar largely stabilised on Thursday as renewed U.S.-Iran tensions kept investors on edge and underpinned demand for the safe-haven currency, while the yen languished near a 40-year low with little sign of a turnaround.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, eased 0.06% to 101.05. The greenback has gained as the worsening flare-up between Washington and Tehran triggered a rebound in oil prices and fanned inflation fears.
Oil prices rose, with Brent crude futures up by more than 1.3% to $95.31 a barrel on Thursday after the U.S. military said it launched a new round of strikes on Iran and the Iranian-aligned Houthis claimed military strikes on two Saudi oil tankers as part of a naval blockade on Saudi Arabia, raising the risk of further disruptions to global oil flows.
Two-year U.S. Treasury yields climbed to a 17-month high on Wednesday as rising oil prices stoked inflation concerns, which could increase the odds of Federal Reserve interest rate hikes.
“What is different from the start of the conflict five months ago is inventories. Lower inventories mean shortages of oil and gas are more likely the longer the conflict continues, exacerbating the negative economic impact of high energy prices which favours the USD,” said Joseph Capurso, head of international economics and foreign exchange at Commonwealth Bank of Australia, in a note.
The euro was last up 0.07% at $1.1418. The European Central Bank will meet later on Thursday. It is all but certain to keep interest rates unchanged but will hold the door wide open to another rate hike in September, as a fresh jump in energy prices threatens to put more upward pressure on inflation.
The Australian dollar gained 0.2% versus the greenback to $0.7012 while New Zealand’s kiwi traded at $0.5818. British sterling last rose almost 0.1% to $1.3383.
In cryptocurrencies, bitcoin fell 0.2% to $65,741.43. Ether lost 0.04% to $1,925.36.
YEN SHOWS LITTLE SIGN OF RECOVERY
The Japanese yen edged 0.02% higher against the greenback to 163.1 per dollar, surrendering gains after Bloomberg News reported on Wednesday that Bank of Japan officials were open to raising rates at a faster pace than the consensus among economists.
Reuters reported that the BOJ remains on alert to upside inflation risks that could lead to faster interest rate hikes than markets project, according to three sources familiar with its thinking.
The currency weakened to 163.23 on Tuesday, its lowest level since December 1986, against a backdrop of broad-based dollar strength, expectations that the Fed could keep raising rates and Japan’s relatively low interest rates.
Japan’s finance minister has repeatedly issued verbal warnings about possible intervention in the currency market, including on Thursday saying the government was ready to take decisive action on foreign exchange as needed.
Tokyo carried out yen-buying operations in April and May, when the yen weakened beyond the 160-per-dollar level.
The dollar’s break above 163 yen, a level that had previously capped the pair, has sharpened intervention concerns, though the lack of forceful warnings from Japanese officials has led some investors to think authorities may be tolerating further yen weakness, said Kumiko Ishikawa, senior FX market analyst at Sony Financial Group.
“At the same time, there is also a view that authorities will not necessarily follow the same playbook every time. So the market is left uncertain over when intervention might come, or whether authorities might first conduct a rate check,” she said.
(Reporting by Satoshi Sugiyama; Editing by Kim Coghill)
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