Key Takeaways
- US-Iran tensions have stabilized the dollar, while the yen approaches a 40-year low.
- Oil prices rise due to renewed conflict between Washington and Tehran, boosting inflation concerns.
- The Japanese yen's weakness is attributed to broader dollar strength and expectations of faster US rate hikes.
TOKYO: The dollar has largely stabilized on Thursday as renewed tensions between the United States and Iran have kept investors cautious. This situation has bolstered demand for the safe-haven currency, while the yen has languished near a 40-year low with little sign of recovery.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, eased by 0.06% to 101.05. The greenback's strength is attributed to rising oil prices, which have surged due to escalating conflicts between Washington and Tehran. Brent crude futures rose more than 1.3% to $95.31 a barrel on Thursday.
The U.S. military announced new strikes against Iran and the Iranian-aligned Houthis claimed military strikes on two Saudi oil tankers as part of a naval blockade on Saudi Arabia, raising concerns about further disruptions in global oil supplies. These developments have exacerbated inflation fears, with two-year U.S. Treasury yields climbing to a 17-month high.
Joseph Capurso, head of international economics and foreign exchange at Commonwealth Bank of Australia, noted that lower oil inventories could lead to shortages, which would worsen the negative economic impact of high energy prices, favoring the dollar. He stated: '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.'
The euro was up 0.07% at $1.1418 as the European Central Bank prepares to meet later on Thursday. It is expected to keep interest rates unchanged but will likely hold open the possibility for another rate hike in September, given a fresh jump in energy prices that could threaten inflation.
The Australian dollar gained 0.2% versus the greenback to $0.7012, while New Zealand’s kiwi traded at $0.5818. British sterling rose almost 0.1% to $1.3383. In cryptocurrencies, bitcoin fell 0.2% to $65,741.43 and ether lost 0.04% to $1,925.36.
The Japanese yen edged up 0.02% against the greenback to 163.1 per dollar, despite reports that Bank of Japan officials are open to raising rates at a faster pace than economists predict. Reuters reported that the BOJ remains vigilant about upside inflation risks, which could lead to faster interest rate hikes than markets anticipate.
Japan’s finance minister has repeatedly issued verbal warnings about possible intervention in the currency market, including on Thursday when he said 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.
'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.'
Joseph Capurso, Head of international economics and foreign exchange at Commonwealth Bank of Australia
