The dollar benefited from a safe haven as the US-Israeli air war against Iran spread to neighboring countries. The euro steadied after falling more than 1% as doubts surfaced about when oil shipments from the region would resume.
Japanese Finance Minister Satsuki Katayama suggested that currency market intervention remains an option to defend the yen, and a speech by Bank of Japan’s Kazuo Ueda later in the day will be closely watched for signs of future rate hikes.
“Europe and Japan stand out among the major economies, in that they still need a lot of energy imports,” Rodrigo Cutrill, currency strategist at National Australia Bank, said in a podcast. “History will tell you that currencies like the yen and the euro will struggle to perform.”
The dollar index, which measures the greenback against a basket of currencies, traded at 98.49 after rising 0.9% in the previous session. The euro rose 0.07% to $1.1695.
The yen edged up 0.09% to 157.2 per dollar after slipping 0.8% in Monday’s session. Sterling was little changed at $1.3407.
Japan’s Katayama said on Tuesday that authorities are in close contact with foreign financial authorities and are closely monitoring financial markets with a “very strong sense of urgency”. Israel attacked Lebanon in response to Hezbollah attacks, and Tehran continued to launch missile and drone attacks on Gulf countries. Qatar halted its production of liquefied natural gas on Monday, prompting a precautionary shutdown of oil and gas facilities across the Middle East.
Europe and Japan face higher energy costs than the United States, which is a net energy exporter.
Concerns that higher inflation will delay the Federal Reserve’s next cut in interest rates also boosted the dollar.
A rate cut is no longer fully priced in until September, compared to earlier expectations for July, based on prices in the Fed funds futures market. Traders continue to price in two 25 basis point cuts at the end of the year.
The Swiss National Bank said it was more willing to intervene in foreign exchange markets after the conflict in the Middle East pushed the Swiss franc to its highest level against the euro in more than a decade.
The Australian dollar strengthened 0.21% to $0.7106. The kiwi added 0.1% to $0.5946.
In cryptocurrencies, Bitcoin fell 0.78% to $68,889.68 and Ether fell 0.6% to $2,031.20.
