Oil exporter currencies held firm while the dollar found broad support as recent attacks on Saudi oil facilities and the threat of military action in the region kept crude prices kept prices elevated.
“Aside from big moves in oil prices, currencies and bonds are relatively calm, as investors are still trying to gauge the extent of political risks,” said Kyosuke Suzuki, director of forex at Societe Generale (PA:SOGN).
Attacks on crude facilities in Saudi Arabia on the weekend boosted oil prices by nearly 15% on Monday, with international benchmark Brent logging its biggest jump in over 30 years. On Tuesday, prices pulled back slightly but remained at lofty levels.[O/R]
Yemen’s anti-government Houthi movement, an ally of Iran, claimed responsibility for the attack that cut the kingdom’s production in half and fanned fears of retaliation in the Middle East.
U.S. President Donald Trump said on Monday said it looked like Iran was behind the attacks but stressed he did not want to go to war. Iran has rejected U.S. charges it was behind the drone strikes on Saturday.
Reactions among major currencies were more muted, with the yen and the Swiss franc quickly giving up early gains made on Monday on knee-jerk safe-haven buying.
Against the yen the dollar traded at 108.11 yen , just below last week’s high of 108.265, its highest level since Aug. 1.
A major resistance is seen at 108.43, the dollar’s 50%retracement from its decline from April to August.
The euro stood at $1.10045 (EUR=), having shed 0.6% on Monday and the Swiss franc also weakened 0.3% to 0.9925 to the dollar .
“The way currencies will react to tensions in the Middle East is not clear-cut. While the yen tends to gain on geopolitical concerns, the dollar is bought when something serious happens,” Yukio Ishizuki, senior strategist at Daiwa Securities.
Another factor boosting the greenback was some exiting of bearish dollar bets in advance of the U.S. Federal Reserve’s two-day policy meeting. Traders widely expect the Fed will cut interest rates by a quarter of a percentage point this week.
The Federal Reserve is expected to cut interest rates by 0.25 percentage point on Wednesday.
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