SINGAPORE – The U.S. dollar slipped on Thursday as renewed strikes in the Middle East dampened market sentiment, while May U.S. consumer inflation rose to a three‑year high, keeping investors wary of the Federal Reserve’s policy direction.
Currency markets have been relatively quiet this week as traders balance concerns over a fragile ceasefire in the Middle East against an escalating cycle of strikes between the United States and Iran, diminishing hopes for a near‑term peace settlement.
The euro traded at USD 1.1553, edging away from last week’s 10‑week low but having relinquished most of its gains since the early‑April ceasefire. Attention now turns to the European Central Bank’s policy meeting later today, where a rate hike is widely expected to combat inflation.
Sterling was priced at USD 1.33905. The dollar index, which measures the greenback against six major currencies, slipped to 99.903 after the U.S. military announced it had completed strikes on multiple Iranian targets.
The United States launched a new round of strikes overnight in Iran, with President Donald Trump warning of further attacks if a peace deal is not reached.
The escalation nudged oil higher, with Brent futures climbing more than 2 % to USD 95.40 a barrel.
Despite the tension, market moves were milder than in previous episodes, leaving the dollar relatively subdued in early Asian trading.
“We still have a degree of news fatigue,” said Nick Twidale, chief market analyst at ATFX Global. “A similar escalation a few weeks ago would likely have pushed Brent past USD 100 a barrel and sent the dollar soaring.”
Twidale added, “Markets are craving certainty. The question is whether this conflict and the closure of the Strait become the new norm or a negotiating tactic that revives peace hopes.”
Rate‑Hike Uncertainty
U.S. consumer prices rose 4.2 % year‑over‑year through May, the largest gain since April 2023, yet economists believe the threshold for further monetary tightening remains high.
Core CPI increased 0.2 % in May after a 0.4 % rise in April, suggesting that energy‑price pressures may be easing.
James Knightley, chief international economist at ING, noted that labor costs remain the biggest expense for U.S. corporations and that slowing wage growth should ease core inflation pressures.
“This should help keep inflation expectations in check. While we no longer expect the Fed to cut rates this year given stronger economic momentum, we also do not anticipate another hike,” Knightley said.
Traders have fully priced in a 25‑basis‑point rate increase in December, a sharp shift from earlier expectations of two cuts this year before the Iran conflict escalated in February.
The Japanese yen traded at 160.52 per dollar, leaving markets attentive to possible intervention by Tokyo.
Bank of Japan Governor Kazuo Ueda is hospitalized for medical treatment and will miss the June 15‑16 policy meeting, where a rate hike is widely forecast.
“Ueda’s absence is not expected to affect the BOJ’s policy decision,” said Carol Kong, currency strategist at Commonwealth Bank of Australia. “The market continues to anticipate a 25‑bp hike next week.”
Other currencies saw the Australian dollar at USD 0.7006 after touching a nine‑week low earlier in the session, while the New Zealand dollar remained steady at USD 0.5797.
(Reporting by Ankur Banerjee in Singapore; Editing by Shri Navaratnam)
