The US dollar edged up against the euro as the conflict in the Middle East kept investors skittish and the yen briefly strengthened prompting renewed speculation about intervention by Japanese authorities. The dollar index, which measures the US currency’s strength against a basket of currencies, was 0.1 per cent higher at 98.269. The index, which has slipped from the highs reached in the immediate aftermath of US strikes on Iran in early March, continues to find support in the absence of a resolution to the Middle East conflict.
Markets remained cautious at the start of the trading week after Iranian news agency Fars reported that two missiles had hit a US warship near Jask on the Gulf of Oman after it ignored Iranian warnings about entering the Strait of Hormuz, prompting it to turn back.
“The blockade is what’s keeping everything on hold and as long as everything is on hold the dollar will remain steady,” said Juan Perez, director of trading at Monex USA in Washington.
“However, risk appetite is going to immediately increase the moment there is any type of peace deal. That’s going to hurt the dollar,” Perez said. The euro was down 0.1pc at $1.17135 after German Chancellor Friedrich Merz sought to downplay a rift with Trump after the US announced plans to draw down troops from Germany. The country’s economy ministry said on Sunday that Berlin is also in touch with the European Commission as it holds talks with Washington, after Trump said on Friday he would increase tariffs on cars and trucks from the EU to 25pc.
“In the grand scheme of things, it (auto tariffs) is definitely not a positive, but it’s not going to be the main driver,” SEB FX strategist Amanda Sundström said.
“The situation in the Middle East is definitely the dominant factor now. If that reaches some de-escalation or more stable situation, that’s going to be positive for the euro.”
The dollar was 0.05pc lower against the yen after the Japanese currency climbed by as much as 0.75pc to 155.69 earlier in the session. Ministry of Finance officials did not immediately respond to requests for comment after the move yesterday, but traders remain on alert for action by authorities following suspected intervention by them last week to bolster the battered currency.
“The case for intervention is strong, given the inflationary impact of a weaker yen via import prices, a US administration broadly comfortable with such action, and Japan’s ample FX reserves,” said Roberto Cobo Garcia, head of G10 FX strategy at BBVA.
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