By Rae Wee
SINGAPORE, July 29 (Reuters) – The U.S. dollar held near a one-month high on Wednesday as hostilities flared anew in the Middle East, while traders awaited a key Federal Reserve interest rate decision later in the day.
The Australian dollar slid after inflation data came in below expectations, reducing the chance of further rate hikes from the Reserve Bank of Australia. It was 0.37% lower at $0.69475.
In the broader market, moves in currencies were largely subdued as investors stayed on the sidelines ahead of the Federal Open Market Committee’s decision, with markets pricing in a 33% chance of a 25-basis-point hike.
Adding to inflation fears, oil prices were back on the rise after the U.S. military said it intercepted multiple ballistic missiles launched by Iran towards U.S. forces in the Middle East.
The euro was nursing losses after falling to a one-month low in the previous session, inching up 0.03% to $1.1389.
Sterling eased 0.03% to $1.3287, languishing near its weakest level since July 1. The New Zealand dollar declined 0.08% to $0.5783.
“Going to the meeting itself, I think what’s clear is that the Fed is shifting in a more hawkish direction,” said Sim Moh Siong, a strategist at OCBC.
“We are expecting no Fed hike, but I think the messaging will be more important than the decision. So if the Fed stays on hold and provides a bit of a hawkish guidance, then I think the dollar is likely to stay supported.”
The dollar was firm at 101.38 against its peers and stood near a 40-year peak against the yen at 163.74.
The persistent weakness in the yen has left traders on alert for any potential intervention from Japanese authorities to shore up the ailing currency.
“There is a possibility that the FOMC’s policy decision and the Chair’s press conference could trigger a further strengthening of the dollar, pushing USD/JPY to 164,” said Hirofumi Suzuki, chief FX strategist at SMBC.
“The likelihood of FX intervention appears significant, as Japanese financial authorities have stepped up their warnings. In terms of timing, if the yen depreciates further following the BOJ’s Monetary Policy Meeting, that could provide a trigger for intervention.”
(Reporting by Rae Wee; Editing by Christopher Cushing and Shri Navaratnam)
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