Key facts
- The dollar index was at 100.56 on Wednesday, near its strongest level in two months.
- Brent crude futures traded at $99.22 per barrel on Wednesday.
- Federal Reserve officials have indicated the possibility of additional rate increases if inflation persists.
- The euro was quoted at $1.1446 and sterling at $1.3337 against the dollar in early trading on Wednesday.
- The Japanese yen weakened to 157.55 per US dollar.
The dollar steadied near a two-month high on Wednesday, as expectations of further interest rate hikes by the Federal Reserve outweighed a drop in oil prices. Brent crude futures traded at $99.22 per barrel, down from recent highs, amid hopes that diplomatic efforts at the UN General Assembly could lead to a resolution of the Middle East war.
Federal Reserve officials have indicated the possibility of additional rate increases if inflation persists, supporting the dollar. Kieran Williams, head of Asia FX at Intouch Capital Markets, noted that while rate support for the dollar appears durable, the currency now needs economic data to confirm further tightening beyond current market pricing.
Oil prices have moderated somewhat, but the path forward remains uncertain due to the lack of clarity on a conflict resolution, according to Michael Wan, a currency analyst at MUFG. Investors are also awaiting a meeting between US President Donald Trump and Chinese President Xi Jinping to seek stability in their relationship.
The Japanese yen weakened to 157.55 per US dollar, as traders remained cautious about potential intervention from Japanese authorities. Last week, the Bank of Japan raised its policy rate to a 31-year high, but two dissenting votes and a lack of a clear hawkish signal led to doubts about the pace of future tightening, especially after the Fed's recent hike and signals of further increases. Williams added that the BOJ hike did not narrow the yield gap with the US because the Fed hiked by the same amount, keeping the lean towards higher US rates.