Written by Ray Wee
SINGAPORE (Reuters) – The dollar edged up on Tuesday and major currencies traded sideways as lingering concerns over tensions in the Middle East partly overshadowed investor optimism about an imminent U.S. interest rate cut.
Geopolitical risks kept early currency moves subdued, although fears of an escalation in the conflict faded following an exchange of rocket fire between Israel and Hezbollah over the weekend.
The yen was last down 0.2 percent at 144.82 yen per dollar, giving up some of its safe-haven gains from the previous session when it hit a three-week high of 143.45 yen per dollar.
The euro and the pound were slightly lower at $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 against the U.S. dollar, after hitting a five-month high overnight as oil prices rose.
“The market is taking a bit of a breather and waiting for key data to come out,” said Rodrigo Catril, chief foreign exchange strategist at National Australia Bank.
“Also given that we have some sort of second-tier data release this week, that supports the view that the environment will be more diverse in the near term.”
However, major currencies held near record highs, while the dollar remained near its lowest in more than a year, supported by the possibility of a U.S. interest rate cut in September after Federal Reserve Chairman Jerome Powell signaled such a move in his Jackson Hole speech on Friday.
San Francisco Federal Reserve President Mary Daly also said Monday that borrowing costs are likely to be cut by a quarter of a percentage point next month.
The US dollar rose 0.05% against a basket of currencies to 100.90, remaining near a 13-month low of 100.53 hit in the previous session.
The aggressive rate hike cycle by the US Federal Reserve and expectations of how high US interest rates will go in the future have been a big 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 rates in September but by how much,” said David Chao, global market strategist at Invesco for Asia-Pacific ex-Japan.
“Powell left the door open to deeper cuts if business conditions deteriorate. Investors believe the Fed appears open to cutting interest rates faster than previously expected.”
Markets have already fully priced in a rate cut next month, and are expected to see around 100 basis points of easing by the end of the year.
Elsewhere, the Australian dollar fell 0.05% to $0.6768, though it remained close to a one-month high of $0.67985 hit on Friday.
The New Zealand dollar fell 0.08 percent to $0.6199, but also moved away from Friday’s high of $0.6236, its strongest level in more than seven months.
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