Renewed strength in the dollar pushed the Japanese yen back to the key 160 level on Wednesday, prompting verbal warnings from authorities and keeping traders on alert for intervention, as fresh Gulf hostilities bolstered demand for the greenback. The U.S. said Iran launched ballistic missiles toward regional neighbours but all failed to hit targets, and that U.S. forces conducted strikes on Qeshm Island in response. The Reuters Iran Briefing newsletter keeps you informed with the latest developments and analysis of the Iran war.
Diplomatic talks between Iran and the United States remain at a stalemate, keeping the market mood sombre. The dollar has tended to rally during flare-ups of the conflict, underpinned by safe-haven demand and the U.S.'s lower sensitivity to energy price shocks; the yen tends to weaken as oil rises, given Japan's reliance on imported energy. The yen on Wednesday fell to the closely watched 160 per dollar level, where authorities have previously intervened. That erased its gains made in the wake of Tokyo's 11.7 trillion yen ($73 billion) intervention a month ago to shore up the ailing currency.
Bank of Japan Governor Kazuo Ueda was due to deliver a closely watched speech later on Wednesday that could reveal his thinking on the prospects of a June rate hike.
Data on Tuesday showed euro zone inflation accelerated further last month, driven by energy and services, bolstering the already strong case for a European Central Bank rate hike later this month. The prolonged war in the Middle East and persistently high energy prices have left investors ramping up bets of policy tightening across major central banks this year, a sea change from the rate cuts that were priced in prior to the conflict. Against a basket of currencies, the dollar was steady at 99.29.
U.S. job openings increased by the most in five years in April, data showed on Tuesday, though the surge likely overstates the labour market's health. Figures on private payrolls are due later in the day, ahead of the key nonfarm payrolls release on Friday. "The nonfarm payrolls figure could be pretty important from a dollar perspective," SEB's Helgesson said. "It could tilt the Fed away from this easing bias and start eyeing rate hikes. I think it could be the start of a sentiment shift for the dollar."
Markets are pricing in roughly 18 basis points worth of Fed rate hikes by December, with a quarter-point hike fully priced in by March next year. Elsewhere, the Swiss franc fell slightly against both the dollar and euro . "Last year it looked like the Swiss franc had been the big beneficiary, along with gold and bitcoin, of the dollar debasement thesis," said ING global head of markets Chris Turner.
"If, however, the market starts to have greater confidence that the Fed will hike after all, those debasement trades could be further unwound." Bitcoin slid to a two-month trough and last traded 0.6% lower at $67,115, while ether similarly hit a more than three-month low and was last at $1,874.
