FOREX-Dollar gets safe-haven lift ahead of Fed decision in face of war

TRADERS ON YEN INTERVENTION WATCH The yen hovered just below 160 per dollar despite the Bank of Japan hinting after its policy meeting on Tuesday at a strong ⁠chance of a rate hike in coming months. Against the dollar, the Japanese currency was little changed at 159.63.

The ​dollar edged higher on Wednesday as investors awaited a closely watched Federal Reserve rate ‌decision ​in what was likely to be Chair Jerome Powell's swan song, against a backdrop of an Iran war that shows little sign of imminent resolution. Activity was tempered by markets in Japan closing for a public holiday and by caution ahead of a string of major central bank decisions over the coming 48 hours, along with the ‌likes of Amazon, Microsoft and Meta reporting earnings after Wednesday's closing bell. Against the dollar, the euro dipped 0.07% to $1.1705 while sterling slipped 0.05% to $1.3513, as both currencies edged further away from their highs earlier this month. The euro is around 1% below where it was at the end of February when the war broke out, while the pound is roughly unchanged. The Fed's rate decision will later take centre stage. The central bank is widely expected to keep rates on hold, leaving the focus on policymakers' ‌assessment of the war's impact on the economy and on Powell's future. "The question is what Powell is going to do, because he still holds the governor seat until 2028 - so whether he chooses to resign after ‌the expiry of the Chair term or if he stays on as a governor and as sort of a shadow Chair," said Carol Kong, a currency strategist at Commonwealth Bank of Australia.

"Powell has previously said that he will stay on if he thinks that Fed independence is under threat, so I think his decision ... will depend on his perception of Fed independence." In geopolitics, efforts to end the Iran war were at an impasse with U.S. President Donald Trump unhappy with the latest proposal from Tehran because he wants nuclear issues dealt with from the outset. Oil ⁠rose for an ​eighth straight day, the longest such stretch since May 2022, ⁠in the aftermath of Russia's invasion of Ukraine. The June contract that expires on Wednesday was up another 1% at $112 a barrel, while the most-active July was at $105, which dampened confidence and fed some demand for the dollar in its capacity as a safe-haven currency. "Crude oil is again ⁠trading back above the $110-a-barrel level with potential economic consequences over the summer period becoming more severe," MUFG head of research for global markets EMEA Derek Halpenny said. "Europe and Asia will be more severely hit and if this drags on there will be increased downside ​pressure on the euro and Asian currencies," he added. TRADERS ON YEN INTERVENTION WATCH The yen hovered just below 160 per dollar despite the Bank of Japan hinting after its policy meeting on Tuesday at a strong ⁠chance of a rate hike in coming months.

Against the dollar, the Japanese currency was little changed at 159.63. So far this month, it has lost 0.6% in value against the dollar and over 2% since the war started, partly due to Japan's exposure to imported energy inflation. Governor Kazuo ⁠Ueda ​stressed the bank's readiness to raise rates to prevent the energy shock from fuelling broader inflation, as long as any economic slowdown from the Middle East proved moderate. "If you look at the broader picture here, yes there's a bit of a hawkish hint coming through, (the BOJ) may have hiked if not for the war, (but) it's still one in which the rate hike that is likely to come is going to be gradual in nature," said Sim ⁠Moh Siong, a strategist at OCBC.

"The story for the yen is one in which the downside is capped because we're near to intervention levels, but it's very difficult to get excited about the upside." Weekly data shows investors are ⁠sitting on the largest bearish position in the yen since ⁠late July 2024, not long after the last round of intervention that was triggered by the exchange rate topping 161 to the dollar. Traders remain on alert for potential intervention from Japanese authorities to shore up the currency, with the 160 level often seen as a potential catalyst. Elsewhere, the Australian dollar eased 0.26% to $0.7164, having fallen slightly following domestic ‌inflation data, which showed persistent price pressures ‌though the key trimmed mean measure of core inflation came in just under forecasts. (Additional reporting by Rae Wee in ​Singapore; Editing by Sam Holmes, Kate Mayberry and Aidan Lewis)