The U.S. dollar remained close to a two-week high on Wednesday as renewed conflict in the Middle East pushed oil prices higher and revived concerns about inflation.
The stronger energy market also contributed to rising bond yields, which helped support demand for the greenback.
The U.S. dollar index, which tracks the currency against a basket of major peers including the euro and Japanese yen, rose 0.11% to 99.79. That marked its highest level since August 17.
The euro weakened 0.14% to around $1.1576.
Higher Treasury Yields Support the Dollar
The dollar continued to benefit from its role as a safe-haven currency.
Rising U.S. Treasury yields and growing expectations of another Federal Reserve interest rate increase added further support, even though some recent U.S. economic data came in below forecasts.
The yield on the benchmark 10-year U.S. Treasury climbed as high as 4.812%, its strongest level since November 2023, before easing slightly to around 4.804%.
Japan’s 10-year government bond yield also remained elevated, rising to around 3.01% after crossing the 3% level for the first time in roughly three decades.
Daisuke Shimazu, chief market strategist at Sumitomo Mitsui Trust Bank, said rising U.S. yields were once again providing support for the dollar.
Higher bond yields can make dollar-denominated assets more attractive to investors while reducing demand for riskier assets such as equities.
Middle East Conflict Pushes Oil Prices Higher
Geopolitical tensions remained a major driver of financial markets.
The United States carried out a series of airstrikes against Iran on Tuesday, which was followed by Iranian retaliation. The escalation marked one of the most serious increases in hostilities in recent weeks.
Oil prices continued to rise on Wednesday.
Brent crude futures gained about 0.75% to $95.36 per barrel, while U.S. West Texas Intermediate crude increased around 0.41% to $90.62.
Higher oil prices can add to inflation pressures by increasing transportation, production and energy costs.
Fed Rate Hike Expectations Strengthen
Investors are also closely watching the Federal Reserve.
Recent U.S. economic data, including July job openings and the August ISM manufacturing index, came in weaker than expected.
However, financial markets have increased expectations for another Fed rate hike following comments from Chair Kevin Warsh at Jackson Hole.
Markets are now pricing in roughly a 68% probability of a September rate increase, compared with around 40% one week earlier.
Upcoming U.S. employment and inflation data will be closely watched ahead of the Federal Reserve’s September 15-16 policy meeting.
Economists expect the upcoming jobs report to show that U.S. employers added around 56,000 positions during August.
Fed Governor Michael Barr also said that further interest rate increases may be necessary if inflation does not cool quickly enough.
New Zealand Dollar Falls Despite Rate Hike
The New Zealand dollar came under sharp pressure against the U.S. currency.
The currency fell around 1% to approximately $0.5844, its weakest level since August 13.
The decline came despite the Reserve Bank of New Zealand raising its official cash rate by 25 basis points to 2.75%.
Investors appeared to view the central bank’s decision and accompanying outlook as less hawkish than expected.
Westpac New Zealand strategist Imre Speizer said the announcement failed to meet the expectations that financial markets had already priced in.
Pound and Australian Dollar Weaken
Other major currencies also lost ground against the U.S. dollar.
The British pound declined around 0.15% to $1.3495, its lowest level since August 14.
The Australian dollar also fell approximately 0.15% to around $0.7133.
The broader currency moves reflected stronger demand for the dollar amid rising yields, geopolitical uncertainty and renewed inflation concerns.
Bitcoin and Ether Trade Mixed
Cryptocurrency markets showed relatively limited movement.
Bitcoin reversed earlier weakness and traded slightly higher at around $77,485.
Ether remained modestly lower, trading near $2,414 after recovering part of its earlier losses.
Japanese Yen Remains Under Pressure
The Japanese yen remained under pressure despite expectations that the Bank of Japan could raise interest rates this month.
The yen traded near 160.15 per U.S. dollar after earlier weakening to its lowest level since July 31.
The 160-per-dollar level remains closely watched by traders because it is considered an important psychological and policy threshold.
U.S. Treasury Secretary Scott Bessent recently expressed support for decisive monetary action to address persistent yen weakness during a meeting with Bank of Japan Governor Kazuo Ueda.
Ueda said policymakers would assess whether Japan’s economy is developing in line with forecasts and whether inflation risks are increasing.
Bank of Japan board member Hajime Takata also argued that interest rate increases should be implemented flexibly in response to inflationary pressures.
Currency Markets Focus on Oil, Inflation and Central Banks
The dollar’s strength remains closely linked to several major market forces.
Rising oil prices, elevated Treasury yields, Middle East tensions and growing expectations of tighter Federal Reserve policy are all supporting demand for the U.S. currency.
At the same time, investors are monitoring the Japanese yen closely as concerns grow over the possibility of further currency intervention.
The outlook for global currencies is likely to remain sensitive to oil prices, inflation data and upcoming central bank decisions.
