Dollar rises to six-week high on rate hike bets and war uncertainty

By Ankur Banerjee and Harry Robertson

SINGAPORE/LONDON, May 20 (Reuters) - The U.S. dollar deed a six-week precocious connected Wednesday arsenic investors came to presumption with the imaginable request for higher involvement rates to tackle ostentation resulting from the ‌Iran war.

The uncertainty implicit erstwhile the struggle whitethorn extremity has fanned ostentation fears and triggered a planetary enslaved selloff, ‌with the output connected the U.S. 30-year Treasury enslaved hitting its highest level since 2007. [US/]

President Donald Trump said the United States whitethorn request to onslaught Iran again but ​suggested Tehran wants a woody to extremity the warfare that has each but closed the cardinal Strait of Hormuz, sending vigor prices soaring and roiling markets.

The dollar index, which tracks the currency against six peers, roseate 0.1% to its highest since April 7 astatine 99.47 but was past level astatine 99.32.

The scale is up much than 1% successful May owed to safe-haven request and markets pricing successful chances of ‌the Federal Reserve hiking involvement rates by the ⁠end of the year.

The euro fell to a six-week debased of $1.158, earlier recovering to commercialized small changed. The British lb was astir level astatine $1.3401.

The Australian dollar, often seen arsenic a barometer for hazard sentiment, ticked ⁠up 0.3% aft dropping 0.9% connected Tuesday.

Traders are present pricing successful a much than 50% accidental of a Fed complaint hike by December, CME FedWatch showed, successful a crisp reversal from 2 cuts expected earlier the war. Investor absorption volition beryllium connected the minutes of the Fed's past ​meeting ​due later.

Analysts said the emergence successful U.S. enslaved yields had been the ​key operator of the dollar.

"There is scope for yields ‌to determination further higher," said Derek Halpenny, a elder currency expert astatine MUFG.

"While we support that the Fed volition yet hike by little than galore different G10 cardinal banks, marketplace pricing remains comparatively debased astatine this juncture – particularly with the risks of a further leap successful crude lipid prices building."

Brent crude futures were down 1.9% to $109.20 per barrel, but remained 50% higher than successful precocious February earlier the warfare began.

YEN VIGIL RETURNS

The dollar's emergence has pushed the yen backmost adjacent the 160 level that led to Japanese officials past ‌month launching their archetypal currency marketplace involution successful astir 2 years.

Tokyo stepped successful ​to stem the yen's descent successful respective bouts of involution astatine the extremity ​of April and aboriginal May, sources told Reuters, but ​the yen's spot did not past long.

It was past level astatine 159.02 per dollar arsenic investors digested comments ‌from U.S. Treasury Secretary Scott Bessent.

Bessent told Reuters connected ​Tuesday helium was assured BOJ Governor ​Kazuo Ueda would bash "what helium needs to do" if granted capable independency by Japan's government, signalling Washington's tendency for further complaint hikes by the cardinal bank.