Karen Brettell
NEW YORK (Reuters) – The dollar gained on Thursday as rising geopolitical tensions provided a safe-haven environment for the currency, while the British pound fell after the Bank of England cut interest rates from a 16-year high.
Fears of a worsening conflict in the Middle East intensified this week after Hamas leader Ismail Haniyeh was killed in the Iranian capital Tehran on Wednesday morning, prompting threats of revenge against Israel.
“We’re looking at the threat of open conflict in the Middle East,” said Karl Schamotta, chief market strategist at Corpay in Toronto. “That supports the dollar’s appeal as a safe-haven asset.”
The dollar also rallied as a sell-off on Wednesday followed dovish comments by Federal Reserve Chairman Jerome Powell at the end of the U.S. central bank’s two-day meeting, which were seen as likely over the top.
“While Jerome Powell was extremely dovish at the press conference, the statement issued by the Federal Open Market Committee actually sounded more measured,” Schamotta said.
Powell said interest rates could be cut as early as September if the U.S. economy follows the expected path, after a modern Fed statement said there was “some further progress toward the (Federal Open Market Committee) 2% goal” while the unemployment rate at 4.1% “remains low.”
Traders are currently pricing in three 25 basis point rate cuts by the end of the year, predicting one cut at each of the Federal Reserve’s September, November and December meetings.
The next major U.S. economic report that will likely drive Fed policy is Friday’s government jobs report for July. It is expected to show that employers added 175,000 jobs during the month, while the unemployment rate is expected to remain steady at 4.1%.
The last augment was 0.06% and amounted to 104.11.
Data released Thursday showed the number of Americans filing modern claims for unemployment benefits rose last week to an 11-month high.
The pound fell 0.18% to $1.2833 after the Bank of England cut interest rates following a vote by policymakers who were divided on whether inflationary pressures had eased enough.
Governor Andrew Bailey, who took a 5-4 vote to cut interest rates by a quarter of a percentage point to 5%, said the BoE would proceed cautiously.
“If you look at the headlines that Bailey has put out: warning against cutting too fast or too much, I think that means they are expecting a fairly steady quarterly pace of reductions,” said Colin Asher, an economist at Mizuho.
The euro hit a three-week low of $1.07775 and was last down 0.11% at $1.0813.
The Japanese yen collapsed a day after rising sharply following the Bank of Japan’s decision to raise interest rates to 0.25%, its highest level since 2008.
The yen has appreciated from a 38-year low of 161.96 against the dollar on July 3, helped by interventions by Japanese authorities and traders unwinding carry trades in which they held compact yen and long U.S. dollar assets.
The dollar was last up 0.11% at 150.15.
In the cryptocurrency market, bitcoin gained 0.03% to $64,584.
