Dollar holds steady as US-Iran tensions and inflation data loom

TOKYO: The US dollar remained broadly stable against major currencies on Wednesday as investors assessed renewed military exchanges between the United States and Iran and awaited inflation data for clues about the Federal Reserve’s interest-rate outlook.

The dollar index, which measures the currency against a basket including the euro and Japanese yen, slipped 0.06% to 99.95.

The euro gained 0.01% to $1.1544, while sterling rose 0.03% to $1.338.

The risk-sensitive Australian dollar fell 0.16% to $0.717, while the New Zealand dollar eased 0.05% to $0.5813.

Currency markets remained cautious after the US military struck targets in Iran following President Donald Trump’s pledge to respond to the downing of an Apache attack helicopter.

Iran’s Revolutionary Guards said they retaliated by attacking a US base in Jordan and 21 other targets in the Gulf, according to Iranian media.

The latest exchanges raised concerns over the durability of a ceasefire between Washington and Tehran, although some analysts said the conflict had not yet entered a broader phase of escalation.

The US economy’s relatively lower exposure to energy shocks compared with other major economies has supported demand for the dollar during the conflict, while higher energy costs have weighed on the euro and yen.

US inflation data in focus

Investors were awaiting the release of the US consumer price index for May later on Wednesday.

The figures are expected to influence expectations for Federal Reserve policy following stronger-than-anticipated employment data released last week.

Higher inflation could strengthen expectations of further US interest-rate increases and support the dollar.

Elevated oil prices, continued economic growth and persistent inflation have also kept market expectations tilted towards tighter monetary policy in the United States.

Any agreement between Washington and Tehran that reduces geopolitical risks could, however, ease safe-haven demand for the US currency.

Yen stays near intervention level

The Japanese yen was nearly unchanged at 160.34 per dollar, remaining close to the 160 level widely viewed by markets as a potential threshold for official intervention.

A Bank of Japan interest-rate increase at its June 16 policy meeting is now almost fully reflected in market pricing.

Analysts said the expected move alone may not be sufficient to reverse the yen’s weakness unless Bank of Japan Governor Kazuo Ueda signals that another increase could be brought forward from December to September, with the possibility of a further hike before year-end.

A Reuters poll of economists indicated that the central bank was expected to raise its key rate in June and again during the fourth quarter, taking borrowing costs to 1.25% by the end of 2026.

Japanese data released on Wednesday showed wholesale inflation accelerated to a three-year high of 6.3% in May compared with the same month last year, as energy-related price pressures broadened.

Markets were also awaiting the European Central Bank’s policy meeting on Thursday, where a 25-basis-point interest-rate increase was widely expected.