By Karen Brettell
NEW YORK (Reuters) – The dollar rose on Thursday as rising geopolitical tensions provided a safe-haven boost for the currency, while the British pound fell after the Bank of England cut interest rates from a 16-year high.
Concerns about a spreading conflict in the Middle East increased this week after Hamas leader Ismail Haniyeh was assassinated in the Iranian capital Tehran on Wednesday morning, an attack that prompted threats of revenge against Israel.
“We are looking at the threat of full-blown conflict breaking out in the Middle East,” said Karl Schamotta, chief market strategist at Corpay in Toronto. “That supports the appeal of the dollar as a safe haven.”
The dollar also rebounded on Wednesday after dovish comments from Federal Reserve Chairman Jerome Powell at the end of the US central bank’s two-day meeting were seen as possibly overdone.
“While Jerome Powell was extremely forgiving during the press conference, the Federal Open Market Committee’s statement really sounded more balanced,” Schamotta said.
Powell said rates could be cut as early as September if the U.S. economy follows the expected path, after the Fed’s new policy statement noted that “some further progress has been made toward the (Federal Open Market) Committee,” while the unemployment rate remains low at 4.1%.
Traders are now pricing in three 25 basis point rate cuts by the end of the year, suggesting there will be one cut at each Fed meeting in September, November and December.
The next major US economic release likely to guide Fed policy will be Friday’s government jobs report for July. Employers are expected to have added 175,000 jobs this month, while the unemployment rate is expected to remain steady at 4.1%.
The latter rose 0.06% to 104.11.
Data on Thursday showed that the number of Americans filing new claims for unemployment benefits rose last week to the highest level in 11 months.
Sterling fell 0.18% to $1.2833 after the Bank of England cut interest rates following a tight vote by its policymakers, who were divided over whether inflationary pressures had eased enough.
Governor Andrew Bailey led the 5-4 decision to cut rates by a quarter point to 5% and he said the BoE would move cautiously going forward.
“If you look at the headlines that Bailey produced: caution about cutting too fast or too much, it implies to me that they are looking at some sort of steady quarterly pace of cuts,” said Colin Asher, an economist at Mizuho.
The euro hit a three-week low of $1.07775 and was last down 0.11% at $1.0813.
The Japanese yen fell a day after a dramatic rally following the Bank of Japan’s decision to raise interest rates to 0.25%, the highest level since 2008.
The yen has risen since hitting a 38-year low of 161.96 against the dollar on July 3, boosted by interventions by Japanese authorities and traders unwinding carry trades in which they went short the yen and long assets in the US dollar.
The dollar last rose 0.11% to 150.15.
In cryptocurrencies, bitcoin gained 0.03% to $64,584.
