By Jiaxing Li
HONG KONG, April 23 (Reuters) – The dollar inched higher near a 1-1/2-week high on Thursday as a stand-off between Iran and the U.S. in the Middle East war and lack of progress in peace talks lifted oil prices back above $100 per barrel, weighing on investor sentiment.
Tehran seized two ships in the Strait of Hormuz on Wednesday, escalating tensions after U.S. President Donald Trump extended a ceasefire with Iran indefinitely with no sign of peace talks restarting.
The two sides remain divided on a ceasefire, their blockades, nuclear issues and control of the strait, leaving the strategic waterway still effectively shut and triggering an energy shock in a blow to economies across the world.
“Markets are increasingly hesitant to commit to directional bets after the relief rally that rode the Trump off-ramp hope in the first half of this month,” Philip Wee, senior FX strategist at DBS, said in a note.
“Volatility has shifted into a tense wait-and-see consolidation.”
The euro was fetching $1.1699, having touched its lowest since April 13 earlier in the session. The single currency is headed for a 0.5% decline in the week, its first drop in four weeks. Sterling was down 0.1% at $1.3484.
The Australian dollar weakened 0.2% to $0.7147, and the New Zealand dollar was down 0.3% at $0.5886.
The Japanese yen was subdued at 159.56, near the 160 level seen as authorities’ line-in-the-sand for intervention. The Bank of Japan is expected to keep interest rates steady next week but signal its readiness to hike them as soon as June.
The U.S. dollar index, which measures the currency against a basket of six major peers, was a touch higher at 98.676, near its highest level since April 13. The index is on track for a moderate 0.5% gain this week following two weekly drops.
The dollar benefited in March on safe-haven demand as the war erupted, but the prospect of a peace deal and a ceasefire earlier this month spurred a risk-on rally, eroding most of the greenback’s gains.
The nearly two-month war in the Middle East has led to soaring fuel prices, dragging consumer confidence to a record low and wiping out market pricing for rate cuts this year.
The U.S. Federal Reserve will wait at least six months before cutting interest rates this year, according to a Reuters poll of economists, as war-driven energy shocks reignite already-elevated inflation.
Focus will be on U.S. weekly initial jobless claims and PMIs due to be released later on Thursday for clues on whether the impact of soaring energy prices is filtering through to the broader economy.
(Reporting by Jiaxing Li in Hong Kong; Editing by Shri Navaratnam and Lincoln Feast.)
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