Dollar gets safe-haven lift

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 percent to $1.1705 while sterling slipped 0.05 percent to $1.3513, as both currencies edged further away from their highs earlier this month.

The euro is around 1 percent 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 US 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 percent 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.