In This Article:
By Samuel Indyk and Ankur Banerjee
LONDON, Oct 17 (Reuters) - The U.S. dollar swayed in a tight range on Tuesday as traders took stock of developments in the Middle East and braced for speeches this week by central bank officials, including Federal Reserve Chair Powell, to gauge the policy outlook.
The yen was pinned close to the key 150 per dollar level, keeping investors on edge for any signs of intervention by the Japanese authorities.
The yen last fetched 149.62 per dollar, having slipped to 150.17 on Oct. 3, the weakest in a year, before getting some relief in a brief rally.
Japan's top financial diplomat Masato Kanda said the yen was still perceived as a safe haven asset like the dollar and the Swiss franc despite its recent weakness, and was benefiting from demand due to the conflict in the Middle East.
Israel's shekel on Monday breached the key level of four per U.S. dollar for the first time since 2015 on jitters over Israel's war with the Palestinian militant group Hamas. It was last at 4.024 per dollar in choppy trading on Tuesday.
Valentin Marinov, Credit Agricole CIB global head of G10 FX research and strategy, said the main drivers continued to be ongoing tensions in the Middle East and elevated global bond yields.
"The key question for the markets remains the scope for further escalation," Marinov said.
"As long as oil prices remain well behaved in the face of geopolitical tensions, that will mean that cost-push inflation may not re-accelerate and, by implication, the Fed could stick to its recent more-dovish rhetoric ruling out further rate hikes."
The dollar index, which measures the U.S. currency against six rivals, inched 0.1% higher to 106.37, after dropping 0.4% on Monday.
Investor attention will firmly be on the Federal Reserve's Powell, who is due to speak on Thursday, during a busy week of speeches by regional bank heads. Fed officials will enter into a blackout period on Oct. 21 before the central bank's Oct. 31–Nov. 1 meeting.
Federal Reserve Bank of Philadelphia President Patrick Harker said on Monday the central bank should not create new pressure on the economy by increasing the cost of borrowing.
Fed funds futures traders are pricing in just a 10% chance that the Fed raises rates at its November meeting, with around a 33% chance of a hike by December, according to the CME's FedWatch tool.
Christopher Wong, currency strategist at OCBC, said the dollar was likely caught in a range for now.
"Higher for longer (rates), relative U.S. growth resilience and fears of broadening conflict are some of the factors that may underpin support for the dollar," Wong said.