Dollar dips amid Middle East tensions and anticipated US rate cuts

Dollar and Yen ease: The Dollar and Yen pulled back from earlier safe-haven gains due to escalating tensions in the Middle East and growing expectations of US interest rate cuts.

The Yen traded 0.1 per cent lower at 144.65 per Dollar, after reaching a three-week high of 143.45 earlier, driven by market concerns about the recent missile exchanges between Israel and Hezbollah.

Meanwhile, the Euro and the British Pound each advanced by approximately 0.1 per cent, reaching $1.1172 and $1.3201, respectively, maintaining their near-multi-month highs.

The Canadian dollar saw a slight increase to 1.34875 per US Dollar, buoyed by recent surges in oil prices, and touched a five-month peak on Monday.

Rodrigo Catril, a senior FX strategist at National Australia Bank, said, "The market seems to be taking a pause, awaiting key data releases. With only second-tier data expected this week, we anticipate a more range-bound environment in the short term."

Dollar nears yearly low

The Dollar remained near its lowest level in over a year, trading at 100.82 against a basket of currencies, just above a 13-month low of 100.53 reached recently. The anticipated US rate cut in September, signalled by Federal Reserve Chair Jerome Powell’s Jackson Hole speech, has weighed on the greenback.

San Francisco Fed President Mary Daly indicated on Monday that a quarter-percentage point rate cut next month was likely, reinforcing expectations of easing monetary policy.

David Chao, global market strategist for Asia Pacific ex-Japan at Invesco, commented, "The focus is now on the extent of potential rate cuts in September. Powell has left the door open for more notable cuts if labour conditions worsen, leading investors to believe that the Fed might cut rates more aggressively than previously anticipated."

Markets have fully priced in a rate cut for next month and are expecting about 100 basis points of easing by the end of the year.

In other currency movements, the Australian dollar gained 0.23 per cent to $0.6787, nearing a one-month high, while the New Zealand dollar rose 0.34 per cent to $0.6225, holding close to its strongest level in over seven months reached on Friday.

(With Reuters Inputs)