The U.S. dollar held near multi-month lows on Tuesday as traders scaled back Federal Reserve rate hike bets, while USD/JPY rose toward 160 yen. Renewed U.S.-Iran tensions pushed Brent crude above $91 a barrel, adding pressure on energy-importing Asian currencies.
The U.S. Dollar Index traded flat at 99.65 by 02:26 ET (06:26 GMT), hovering near its lowest level since early June. Meanwhile, USD/JPY rose 0.2% to near 160 yen, with the yen giving back most of the gains it made after joint U.S.-Japan intervention at the end of July.
Soft data trims Fed rate hike odds
The dollar's weakness followed a run of softer U.S. economic data. Retail sales fell in July for the first time in nine months. Unexpected job losses and mild inflation readings have also reduced expectations for tighter Fed policy.
As a result, markets now price only a 35% chance of a rate increase at the Fed's September meeting, according to CME FedWatch. Traders will next focus on the Federal Reserve's minutes due on Wednesday for further clues on the rate outlook.
Oil surge and Iran tensions cap gains
Gains for Asian currencies were limited by a sharp rise in energy prices and higher U.S. bond yields. Brent crude rose above $91 a barrel on Tuesday as the U.S.-Iran ceasefire expired and Tehran reportedly said it would adopt a fully offensive military posture.
President Donald Trump threatened military action against Oman if it interfered with U.S. efforts to reach a deal with Iran, adding to uncertainty around the Strait of Hormuz, a crucial route for global oil shipments. The renewed tensions kept inflation risks elevated for energy-importing Asian economies.
Rupee under pressure as yields climb
The Indian rupee faced renewed pressure, with USD/INR edging up 0.1% to 95.67 rupees — its highest level since July 30. Rising crude and U.S. yields came on top of pressure from the Reserve Bank of India's decision to bring forward the deadline for its foreign-currency deposit swap facility.
The RBI was also likely intervening in the foreign-exchange market for an eighth consecutive session on Tuesday to cushion the rupee from elevated oil prices, Reuters reported. Higher U.S. Treasury yields remain another headwind for emerging Asian currencies, with the U.S. 10-year yield having risen above 4.7%. The 30-year yield has moved above 5.3%, its highest level since 2007.
Source: Investing.com
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