The dollar firmed to a one-week high on Thursday as Middle East tensions escalated following fresh U.S. strikes on Iran. Iran said its Revolutionary Guards targeted a U.S. airbase after what it described as an early morning U.S. attack near Bandar Abbas airport. Kuwait’s army reported intercepting hostile missile and drone threats.
The safe-haven dollar steadied and oil prices rebounded as hopes for a swift resolution to the war faded. Investors expect the greenback to break higher as the Fed shifts focus to battling inflation amid elevated energy prices.
The euro fell 0.2% to $1.1600, and the pound dropped 0.3% to $1.3392. The risk-sensitive Australian dollar weakened 0.4% to $0.7111 - a one-week low - and the New Zealand dollar slipped 0.3% to $0.58831.
The dollar index strengthened 0.17% to 99.464, near its highest since May 21. Markets now await the release of the Fed's preferred inflation gauge, the core PCE deflator.
The yen weakened to 159.610 per dollar, the lowest since April 30 and within sight of the 160 level that triggered Japanese intervention last month. Markets are pricing roughly a 70% chance of a quarter-point rate hike at the BOJ’s June 15-16 meeting, per LSEG data.
"The broader question is whether it was worth it for what essentially amounts to just a single month's relief. And furthermore, will authorities have the stomach to write a similar-sized cheque if the 160 level is breached again?' said Tony Sycamore of IG.