The American currency remained stable against other major global currencies on Wednesday after US forces conducted military strikes against Iran, with market participants looking ahead to important inflation statistics that could provide insight into Federal Reserve monetary policy decisions.
US military forces carried out strikes against Iran on Tuesday following President Donald Trump’s statement that Tehran had shot down an American Apache helicopter in the Strait of Hormuz, creating obstacles for peace negotiations between the nations and adding stress to an already fragile ceasefire. However, Trump minimized the helicopter incident when speaking to The Wall Street Journal, saying it “wasn’t a big deal” and emphasizing that “the pilot is fine.”
Even with these developments and the weekend breakdown of the ceasefire, “we continue to assess the war to be on a de-escalatory path,” stated Harry Ottley, economist at Commonwealth Bank of Australia, in a note.
The dollar index, which tracks the American currency against a collection of other currencies including the yen and euro, rose slightly by 0.01% to reach 100.02.
The euro declined 0.05% to $1.1537 while the British pound dropped 0.04% to $1.337.
America’s economy is viewed as being more protected from energy-related disruptions compared to other nations, which has bolstered safe-haven interest in the dollar during the Iran conflict while putting pressure on the euro and Japanese yen.
At the same time, markets have almost completely priced in a Bank of Japan interest rate increase at the June 16 policy meeting, suggesting it would be unlikely by itself to cause a major shift in yen weakness if implemented.
“It’s going to take some hawkish commentary from Governor (Kazuo) Ueda that signals the BOJ could bring forward its next hike from December to September – with the possibility of a third hike before year-end,” noted Tony Sycamore, market analyst at IG, in a statement. “Without that or something similar, the Ministry of Finance will likely need to pull out its cheque book again to defend the currency.”
The Japanese currency weakened 0.03% against the dollar to 160.38 per dollar, staying near the 160 threshold widely considered a trigger point for possible official intervention.
Wednesday’s data revealed Japan’s wholesale prices jumped 6.3% year-over-year in May, surpassing forecasts and demonstrating growing price pressures from the Middle East conflict.
Later Wednesday, the United States will publish consumer price index figures for May, considered vital for determining whether the Fed might favor interest rate increases later this year after last week’s better-than-anticipated employment data.
“Markets will be watching whether the impact of persistently high oil prices spills over into services and other sectors. If rising inflationary pressure comes into sharper focus, the dollar is likely to attract further buying,” commented Akihiko Yokoo, senior analyst at Mitsubishi UFJ Bank, in a note.
Strong economic growth and ongoing inflation will probably maintain expectations leaning toward additional US rate increases, even though any potential US-Iran agreement could provide some relief.
Financial markets will also monitor the European Central Bank’s approaching policy meeting scheduled for Thursday, where a 25-basis-point rate increase is broadly anticipated.
The risk-sensitive Australian dollar fell 0.1% against the American currency to $0.7021. The New Zealand dollar declined 0.17% versus the greenback to $0.5812.
