The U.S. dollar eased 0.08% on Thursday, giving back part of its overnight gains after Federal Reserve meeting minutes sounded less hawkish than many traders had feared.
However, rising tensions in the Middle East and stronger oil prices continued to support expectations that U.S. interest rates could stay higher for longer.
The dollar index moved slightly lower after minutes from the Fed’s June policy meeting showed officials were divided over whether further rate hikes were needed. This reduced expectations for a more aggressive tightening path.
Euro and Pound Recover From Recent Lows
The euro and British pound both gained 0.1% in London trading.
The move helped both currencies recover from near one-week lows reached after Wednesday’s selloff. That decline came as renewed Middle East tensions briefly pushed traders toward the dollar as a safe-haven currency.
Chris Turner, global head of markets at ING, said the foreign exchange reaction was relatively limited. He noted that the dollar was slightly stronger at first, but the bigger impact was a rise in volatility and the unwinding of carry trade positions in emerging market high-yield currencies.
Currency Volatility Signals Investor Caution
The quick rise in currency volatility shows that investors remain cautious across global markets.
The Fed minutes gave European currencies some short-term relief. Still, the dollar stayed close to recent 13-month highs, supported by its yield advantage and safe-haven appeal.
Oil Prices Keep Inflation Risks Alive
The main factor supporting the dollar remains the commodity market.
Crude oil prices have climbed due to renewed military action in the Gulf. This has raised fresh concerns that higher energy costs could keep inflation elevated.
Because Fed officials highlighted inflation as a major concern in the June minutes, any lasting energy shock could make the central bank more likely to keep interest rates elevated into the winter.
That outlook continues to support the dollar against other major currencies.
Yen Remains Near Multi-Decade Lows
The Japanese yen stayed close to its weakest level in 40 years.
The currency’s continued weakness has kept Japanese authorities on alert. Repeated warnings from government officials have also increased speculation that Tokyo could intervene in the currency market.
Australian Dollar Edges Higher
Elsewhere, the Australian dollar moved slightly higher.
The South Korean won was little changed as investors monitored heightened volatility in Seoul’s equity markets.
For now, foreign exchange markets remain focused on Fed policy, oil prices, Middle East tensions, and the risk of renewed inflation pressure.
