Dollar trades higher after Fed, investors focus on Israel-Iran conflict
The U.S. dollar traded higher against most major currencies on Wednesday, but remained weaker against the yen after the Federal Reserve kept interest rates unchanged as economic uncertainty and tariffs continue to paint a murky outlook.
Policymakers still forecast slashing rates by half a percentage point this year, but have slowed the pace of future cuts, concerned that President Donald Trump's tariffs would stoke inflation.
"The speculation continues to be up in the air. Q2 numbers are going to be key to really coming to the realization that we are under actual recessionary pressures that will force the Fed to really rethink what they're doing," said Juan Perez, director of trading, at Monex USA.
"They are receiving mixed signals, so they're sending back mixed signals."
With the Fed's decision now behind it, markets remain focused on the fighting between Israel and Iran, which has spurred investors to scoop up safe havens.
Israel has bombarded arch-enemy Iran over the past six days to halt its nuclear activity and has asserted the need for a change of government in the Islamic Republic.
The U.S. military is also bolstering its presence in the region, Reuters reported, stirring speculation about U.S. intervention that investors fear could widen the conflict in an area with critical energy resources, supply chains and infrastructure.
Iranian Supreme Leader Ayatollah Ali Khamenei has rejected Trump's demand for unconditional surrender on Wednesday, and the U.S. president said his patience had run out, but gave no clues on his next step.
The dollar has resumed its role as a safe haven, having gained around 1% against both the Japanese yen and Swiss franc since last Thursday. On Wednesday, the U.S. currency took a breather, edging fractionally lower against the yen and the franc and more noticeably so against the euro and the pound.
Against a basket of six other major currencies, the dollar is still down around 8% so far this year as confidence in the U.S. economy and the reliability of Trump's administration as a trading and diplomatic partner have faded.
U.S. markets are closed on Thursday for the Juneteenth federal holiday.
Against the yen , the dollar pared losses and was last seen down 0.06% to 145.18 and was 0.36% higher against the franc at 0.8190 francs.
On Thursday, the Swiss National Bank, the Bank of England and the Norges Bank will deliver their respective rate decisions.
The pound fell 0.12% to $1.3411, after having received an early boost from data showing inflation cooled no more than expected to an annual rate of 3.4% in May, ahead of the BoE decision. The euro slipped 0.03% to $1.1476.
In the background, an area of frustration for investors was a Group of Seven meeting in Canada that yielded little on the tariff front ahead of Trump's early-July deadline for additional import levies.
Source: Reuters
