By Satoshi Sugiyama
TOKYO, July 14 (Reuters) – The dollar steadied on Tuesday ahead of U.S. inflation data, with Middle East tensions lifting oil prices while the yen held a soft tone amid caution over possible intervention and after policymakers’ comments on state pension fund allocations.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, was flat at 101.27.
Inflation risks remain in the spotlight with the release of U.S. June CPI data on Tuesday, June PPI gauges the following day, and Fed Chair Kevin Warsh’s first semiannual testimony before Congress.
Concerns over escalating tensions between the United States and Iran returned to the fore, with President Donald Trump saying on Monday Washington was reinstating a naval blockade on Tehran and would ensure the Strait of Hormuz remained open for a fee following fresh exchanges of missile and drone strikes.
U.S. and Iranian forces exchanged heavy missile and drone assaults at the weekend, with Tehran striking U.S. facilities in states across the Gulf on Sunday and saying it had again closed the vital Strait of Hormuz shipping route.
Oil prices rose more than 9% to a one-month high on Monday. Both U.S. West Texas Intermediate and Brent crude futures rose more than 2% to their highest since mid-June in early Tuesday trading.
The euro was stable against the dollar at $1.1383 and sterling traded at $1.3347.
Meanwhile, Federal Reserve Governor Christopher Waller said rates may need to rise “in the near term” if data shows inflation remaining well above the central bank’s 2% target.
A core CPI reading of 0.3% or higher would likely imply, depending on PPI data due later in the week, that the Fed’s preferred core PCE deflator is also running at 0.3% or above, said Ray Attrill, head of FX strategy at National Australia Bank, in a podcast.
“That may well be a trigger for a Fed rate hike as early as the July meeting,” Attrill said.
Economists’ median estimate for the June core CPI was 0.2% growth month-on-month.
Fed funds futures are pricing in about 30 basis points of rate hikes by the U.S. central bank this year, according to LSEG data.YEN UNDER PRESSURE AGAIN
The Japanese yen was roughly flat against the greenback at 162.40 per dollar, putting traders back on alert for possible intervention from authorities in Tokyo as the Japanese currency continues to languish at 40-year lows.
“Japanese authorities appear to have softened their tolerance a touch, though they remain vigilant and have indicated that further forceful intervention is on the cards should we see another dramatic move from here,” said Matthew Ryan, head of market strategy at Ebury, a British payment firm.
The Japanese yen slipped against the dollar on Monday after Reuters reported that Tokyo had no imminent plans to change the asset allocations of its state pension funds, tempering expectations of near-term support for domestic assets.
The yen and Japanese bonds had rallied on Friday after Finance Minister Satsuki Katayama said the government would seek ways to encourage pension funds, including the Government Pension Investment Fund, to make greater investments in Japanese financial assets.
The Australian dollar last traded at $0.6915 versus the greenback. New Zealand’s kiwi gained 0.24% versus the dollar to $0.5762.
In cryptocurrencies, bitcoin rose 0.23% to $62,293.66. Ether was up 0.56% at $1,775.54.
(Reporting by Satoshi Sugiyama; Editing by Jacqueline Wong)
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