The US Dollar remained close to multi-month lows against most major currencies on Tuesday as traders continued to scale back expectations of near-term monetary tightening. However, the looming risk of a wider Middle East conflict kept market sentiment fragile.
The Euro slipped from Monday’s two-month high of $1.1614, last trading at $1.1571, while Sterling stood at $1.3534, just below the three-month peak reached in the previous session.
Recent US economic data have pointed to a slowdown, with unexpected job losses last month and subdued inflation readings prompting investors to reduce bets on a Federal Reserve rate hike.
Markets are now pricing in a 35% probability of a rate hike at the Fed’s September meeting, down sharply from 52.2% a week earlier, according to the CME FedWatch tool. Investors are also no longer fully expecting the central bank to raise rates by the end of the year.
Iran said it would adopt a “fully offensive” military stance after negotiations aimed at securing a lasting end to the war stalled, a senior Iranian official told Reuters, as Washington ruled out extending the ceasefire agreement reached in June.
The conflict, which has lasted more than five months, has disrupted expectations for global interest rates and fuelled inflation concerns throughout much of the year.
This week's rising worries helped curb some of the Dollar's losses through safe-haven flows, with the Dollar index, which measures the US currency against six other units, trading 0.1% higher at 99.66.
Furthermore, the Australian Dollar was trading at $0.71, remaining close to its strongest level since early June, while the New Zealand Dollar fell 0.38% to $0.588.
Global bond yields resumed their climb as investors remained concerned about the economic impact of persistently high oil prices and a prolonged shutdown of the Strait of Hormuz, where daily vessel crossings had fallen to single digits.
Brent crude futures gained 0.56% to $91.38 a barrel, reaching their highest level since 30th July.
The 30-year bond yield remained at its highest level since 2007, while Japan’s 10-year JGB yield climbed to its strongest point in nearly three decades.
Elsewhere, the Yen remained just below the 160-per-Dollar level, with attention now turning to next month’s Bank of Japan meeting. The central bank is expected to raise interest rates and is considering a more aggressive pace of tightening thereafter, according to sources cited by Reuters.
The Yen was last slightly weaker at 159.72 per Dollar, having surrendered nearly half of the gains made after coordinated US-Japan intervention at the end of July helped pull the currency away from its 40-year low of 163.99.