By Rae Wee
SINGAPORE (Reuters) – The dollar rose slightly on Tuesday and major currencies traded sideways as lingering concerns about tensions in the Middle East dampened some investor optimism about impending U.S. interest rate cuts.
Due to geopolitical risks, currency movements remained subdued at the beginning, even as fears of an escalation of the conflict subsided following the major rocket launch between Israel and Hezbollah at the weekend.
The yen was last down 0.2 percent at 144.82 against the dollar, giving up some of its gains from the previous session as a safe haven. In the session it had risen to a three-week high of 143.45 against the dollar.
The euro and pound fell slightly to $1.1161 and $1.3182 respectively, but both were not far from their recent multi-month highs.
The Canadian dollar was little changed at 1.3487 against the US dollar after hitting a five-month high overnight amid rising oil prices.
“The market is taking a breather, so to speak, waiting for important data to be released,” said Rodrigo Catril, chief foreign exchange strategist at National Australia Bank.
“In addition, some sort of secondary data release is expected this week, suggesting a more volatile environment in the near future.”
Still, major currencies held near their milestone highs and the dollar at its lowest in over a year, helped by the likelihood of a US interest rate cut in September after Federal Reserve Chairman Jerome Powell more or less hinted at such a move in his speech in Jackson Hole on Friday.
San Francisco Fed President Mary Daly also said on Monday that a quarter-percentage point cut in borrowing costs next month was likely.
Against a basket of currencies, the greenback was last up 0.05 percent at 100.90 and was hovering near its 13-month low of 100.53 reached in the previous trading session.
The Fed’s aggressive rate hike cycle and expectations of a possible further rise in US interest rates have contributed significantly to the strength of the dollar over the past two years and put pressure on other currencies, particularly the Japanese yen.
“The question now is no longer whether the Fed will cut rates in September, but by how much,” said David Chao, Invesco’s global market strategist for Asia-Pacific excluding Japan.
“Powell left open the possibility of larger rate cuts if labor conditions worsen. Investors believe the Fed appears willing to cut rates faster 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.
The Australian dollar fell 0.05 percent to $0.6768, but remained close to its monthly high of $0.67985 reached on Friday.
The New Zealand dollar fell 0.08 percent to $0.6199, but was not far from Friday’s high of $0.6236, its highest in over seven months.
(Reporting by Rae Wee; Editing by Shri Navaratnam)
