Dollar steadies following US strikes on Iran and ahead of inflation data

The U.S. dollar maintained a steady position against major global currencies on Wednesday, as markets braced for crucial U.S. inflation data that could influence the Federal Reserve's policy decisions. This stability followed the U.S. military's launch of strikes against Iran, an action initiated after President Donald Trump accused Tehran of downing a U.S. Apache helicopter over the Strait of Hormuz.

“

we continue to assess the war to be on a de-escalatory path.

The strikes have exacerbated tensions and put further strain on a fragile two-month ceasefire between Iran and Israel. Despite the geopolitical events and the recent lapse in the ceasefire, some analysts, like Harry Ottley of Commonwealth Bank of Australia, assess the broader conflict to be on a "de-escalatory path." The dollar index, measuring its strength against a basket of currencies, saw a marginal increase, while the euro and sterling experienced slight declines.

Economies like the U.S. are perceived as more insulated from energy shocks compared to others, which has bolstered demand for the dollar as a safe-haven asset during the Iran conflict. This contrasts with the impact on currencies like the euro and the Japanese yen. Meanwhile, the Bank of Japan is expected to implement a rate hike at its upcoming policy meeting, though significant market impact hinges on Governor Kazuo Ueda's commentary regarding future tightening.

“

It's going to take some hawkish commentary from Governor (Kazuo) Ueda that signals the BOJ could bring forward its next hike from December to September - with the possibility of a third hike before year-end.

The Japanese yen weakened against the dollar, hovering near the 160 yen level, a threshold widely considered critical for potential government intervention. Data released Wednesday showed Japan's wholesale prices surged 6.3% year-on-year in May, exceeding expectations and underscoring inflationary pressures linked to the Middle East conflict. Investors are now keenly focused on the U.S. consumer price index data for May, seeking clues on inflation and the potential for further Fed rate hikes later in the year.

“

Markets will be watching whether the impact of persistently high oil prices spills over into services and other sectors. If rising inflationary pressure comes into sharper focus, the dollar is likely to attract further buying.