USD Rises on Safe-Haven Demand as Yen Hits 40-Year Low

The US dollar rose to its highest level in over a week on Tuesday (21st), as rising US Treasury yields and continued Middle East conflict fueled safe-haven demand. Meanwhile, the Japanese yen fell again to its weakest level against the dollar since 1986.

In late New York trading, the dollar index (DXY), which tracks the dollar against six major currencies, rose 0.2% to 101.17, its highest level since July 13.

The dollar index had come under pressure last week, as US economic data showed a slowdown in the pace of increases for both the Consumer Price Index (CPI) and Producer Price Index (PPI). Additionally, retail sales at gas stations declined month-on-month, and a survey from the University of Michigan showed July consumer confidence rose to its highest level since February, while inflation expectations for the next year declined.

These data led markets to believe the Federal Reserve (Fed) would not need to tighten monetary policy further in the short term.

However, the June cooling in inflation was largely driven by falling oil prices following a temporary peace agreement between the US and Iran.

Yet, as tensions between the two sides have risen again, oil prices have surged once more, reigniting market concerns about inflation. Several Fed officials, including Fed Chair Kevin Warsh during his congressional testimony last week, stated that the fight against inflation is far from over.

The two major crude oil futures benchmarks have risen nearly 4% since Monday, having seen double-digit gains last week.

The US has conducted airstrikes against Iran for 10 consecutive days, while Iran has retaliated by attacking oil tankers in the Strait of Hormuz and targeting US military bases in the Middle East.

US President Trump said on Tuesday that Iran "very much wants" to meet with the US, but "we have no interest until they are ready for meaningful negotiations."

Trump reiterated that Iran must not possess nuclear weapons and warned, "Any location where they even consider developing nuclear weapons, we will strike with very powerful force."

Pound Weighed by UK Fiscal Concerns, Yen Falls to 40-Year Low

Among other major currencies, the British pound fell 0.4% against the dollar to $1.3379.

Meanwhile, UK government bond yields rose for a second consecutive day following the appointment of new Prime Minister Andy Burnham, reflecting market concerns over the UK's fiscal outlook.

Burnham, the UK's seventh prime minister in ten years, reaffirmed on Monday that he would adhere to the fiscal discipline set by his predecessor Keir Starmer. He continues to build his new cabinet, appointing former Defense Secretary John Healey as Chancellor of the Exchequer, which boosted defense-related stocks.

The yen fell to a low of 163.19 against the dollar, its weakest level in 40 years.

The yen has remained above 160 for over a month, a level that prompted the Japanese government to intervene in the market earlier this year with billions of dollars.

The euro fell 0.1% against the dollar to $1.1401, trading in a narrow range as markets await the European Central Bank's (ECB) latest interest rate decision on Thursday.

As of around 6:00 AM Taiwan time on Wednesday (22nd), prices were:

DXY index at 101.1853, down 0.0218%.

EUR/USD exchange rate at 1.1399, up 0.0175%.

GBP/USD exchange rate at 1.3376, up 0.0150%.

AUD/USD exchange rate at 0.6999, up 0.0143%.

USD/CAD exchange rate at 1.4106, down 0.0283%.

USD/JPY exchange rate at 163.1500, down 0.0245%.