By Ray Wee
SINGAPORE (Reuters) – The dollar and yen fell on Tuesday, giving back some of the safe-haven gains they had made earlier in the week, after a major missile attack between Israel and Hezbollah raised fears of further escalation of tensions.
An impending US interest rate cut also remained top of mind for investors, further weighing on the US dollar, but a lack of major news in Asian markets meant the currency remained broadly range-bound.
The yen rose to a three-week high of 143.45 yen in the previous trading day on a flight to safe haven assets, before closing down 0.1 percent at 144.65 yen per dollar.
The euro and pound rose about 0.1 percent to $1.1172 and $1.3201, respectively, hovering near their highest levels in months.
The Canadian dollar was up slightly at C$1.34875 per U.S. dollar, after hitting a five-month high on Monday on rising oil prices.
“Markets are taking a breather and waiting for key data to be released,” said Rodrigo Catril, senior currency strategist at National Australia Bank (OTC:).
“Given that the second-largest economic data is due to be released this week, this strengthens the view that we are seeing a more range-bound economic environment in the near term.”
Most currencies were near milestone highs and the dollar was near its lowest level in more than a year, buoyed by the increased likelihood of a cut in U.S. interest rates in September after Federal Reserve Chairman Jerome Powell all but agreed to do so in a speech at Jackson Hole on Friday.
San Francisco Federal Reserve President Mary Daly also said Monday that borrowing costs could be cut by 0.25 percentage point next month.
The US dollar fell 0.03% against major currencies to 100.82, hovering around a 13-month low of 100.53 hit in the previous trade.
Over the past two years, the Fed's aggressive rate-hiking cycle and the expectation of how much higher U.S. interest rates will be in the future have been a major driver of the dollar's strength, putting pressure on other currencies, particularly the Japanese yen.
“The question now is not whether the Fed will cut rates in September, but how much they will cut,” said David Chao, global market strategist for Asia Pacific ex-Japan at Invesco.
“Chairman Powell left the door open for a bigger cut in case labor conditions worsen. Investors think the Fed seems prepared to cut rates at a faster pace than previously expected.”
Markets are already fully pricing in a rate cut next month, expecting around 100 basis points of easing by the end of the year.
Meanwhile, the Australian dollar rose 0.23% to $0.6787, not far from a one-month high of $0.67985 hit on Friday.
The New Zealand dollar rose 0.34% to $0.6225, also hovering around Friday's highest level of $0.6236, its highest in more than seven months.
