By Rae Wee
SINGAPORE (Reuters) – The dollar edged higher on Tuesday and major currencies traded sideways as lingering concerns over tensions in the Middle East partly offset investor optimism about upcoming U.S. interest rate cuts.
Geopolitical risks kept early currency moves subdued, although fears of an escalating conflict faded following the major missile exchange between Israel and Hezbollah this weekend.
The yen was last down 0.2% at 144.82 per dollar, giving up some of the previous session’s safe-haven gains as it rose to a three-week high of 143.45 per dollar.
The euro and sterling fell slightly to $1.1161 and $1.3182 respectively, although both were not far from their recent multi-month highs.
The Canadian dollar was little changed at 1.3487 per U.S. dollar after hitting a five-month high overnight as oil prices soared.
“The market is taking a bit of a breather and waiting for key data to be released,” said Rodrigo Catril, senior FX strategist at National Australia Bank (OTC:).
“Given that we have a kind of second-line data release this week, this plays into the view of kind of a more diverse environment in the near term.”
Still, major currencies remained near their highest levels and the dollar at its lowest in more than a year, helped by the likelihood of a US rate cut in September after Fed Chairman Jerome Powell in his Jackson Hole more or less had nodded towards such a step. speech on Friday.
San Francisco Fed President Mary Daly also said Monday that a quarter-percentage point cut in borrowing costs is likely next month.
Against a basket of currencies, the dollar was last 0.05% higher at 100.90, languishing near a 13-month low of 100.53 hit the previous session.
The Fed’s aggressive rate hike cycle and expectations of how much further U.S. yields could rise have been a huge driver of the dollar’s strength over the past two years, keeping other currencies, especially the Japanese yen, under pressure.
“The question now is no longer whether the Fed will cut spending in September, but by how much,” said David Chao, Invesco’s global market strategist for Asia-Pacific ex-Japan.
“Powell has left the door open for bigger cuts if working conditions worsen. Investors believe the Fed appears open to a faster rate cut than previously expected.”
Markets have already fully priced in a rate cut next month and expect an easing of around 100 basis points by the end of the year.
Elsewhere, the Australian dollar fell 0.05% to $0.6768, but was not far off a one-month high of $0.67985 on Friday.
The New Zealand dollar edged 0.08% lower to $0.6199, but also did not stray far from Friday’s high of $0.6236, its strongest level in more than seven months.
