FOREX-Dollar slips as labor market remains stable, US-Iran tensions flare

The US dollar dipped for a second straight session due to renewed US-Iran tensions and stable labor market data, while oil prices eased amid concerns over inflation and global growth.

The dollar dipped for a second straight session ‌on ​Thursday as the U.S. and Iran carried out renewed attacks, while a stable reading on the labor market kept investor attention on potential inflation pressures. Iranian armed forces launched attacks on U.S. military infrastructure in neighbouring Gulf states following U.S. strikes on Iran's southern coastal ‌and eastern provinces, further straining a three-week-old ceasefire agreement. Oil prices eased from earlier highs, however, with U.S. crude last down 2.65% to $71.57 a barrel and Brent at $75.72 per barrel, down 2.95% on the day, as concerns about higher inflation denting global growth outweighed supply worries.

The dollar index, which measures the greenback against a basket of currencies, shed 0.15% to 100.87, with the euro ‌up 0.19% at $1.1436. "It's safe to say there's a lot of confusion," said Erik Bregar, director of FX and precious metals risk management at Silver Gold Bull in Toronto. "You ‌could argue the sideways price action, the market is trying to decipher what reality is, but we're going to trade off the tone of the next headline, sadly."

Analysts see the U.S. as more insulated from energy supply shocks compared with other countries, which could force other central banks to hike interest rates at a faster pace than is expected from the Federal Reserve. The minutes from the Fed's June 16 to 17 meeting, ⁠the first under new ​Fed Chairman Kevin Warsh, showed concern about ⁠high inflation mounted among policymakers, and a few participants saw a case to raise interest rates right away.

RATE HIKE EXPECTATIONS SHIFT New York Fed President John Williams said on Thursday that despite the resumption of hostilities in ⁠the Middle East, he was not looking for a sustained rise in energy prices over the remainder of the year.

Expectations for a rate hike of at least 25 basis points at the Fed's July ​28 to 29 meeting eased back to 26.2% from 31% in the prior session, but up from 18.2% a week ago, according to CME Group's FedWatch tool. ⁠For the September 15 to 16 meeting, markets are pricing in a 61.7% chance of a hike, down from the 66.6% on Wednesday but an increase from the 54.1% a week earlier. European Central Bank policymakers gathering last ⁠month ​were presented with projections showing inflation staying above target into next year despite higher interest rates, accounts of the meeting showed on Thursday.

On the U.S. economic front, weekly initial jobless claims dipped by 2,000 to 215,000, below the 218,000 estimate of economists polled by Reuters, indicating the labor market remains on stable footing. Against the Japanese yen, the dollar weakened 0.18% ⁠to 162.30. The Bank of Japan saidthe Iran war is likely to goad more firms to raise prices later this year, signaling caution over mounting inflationary pressures that could bolster ⁠the case for further rate hikes.

Japan's government plans ⁠to add an explicit reference to Bank of Japan independence in its economic blueprint after concerns over political interference in monetary policy helped push bond yields to multi-decade highs, a source familiar with the matter said. Sterling strengthened 0.23% to $1.3415 after hitting a fresh three-week high of $1.343.