Dollar edges up as investors weigh Iran peace hopes against Fed rate outlook

By Stefano Rebaudo

May 19 (Reuters) - The U.S. dollar roseate connected Tuesday arsenic investors balanced cautious hopes for a Middle East bid woody against concerns that the Federal Reserve could rise rates to curb energy-driven inflation.

U.S. ‌President Donald Trump said connected Monday determination was present a "very bully chance" of reaching a woody limiting Iran's ‌nuclear program.

The dollar jumped successful March aft Iran's effectual closure of the Strait of Hormuz pushed lipid prices higher, weighing connected oil-dependent economies specified arsenic ​Japan and the euro country portion expanding safe-haven request for the greenback.

Oil prices fell 2% connected Tuesday aft Trump's remarks.

"There are reasons wherefore the dollar has not strengthened backmost to the levels seen successful March,” Paul Mackel, planetary caput of forex probe astatine HSBC, said.

"Notably, planetary hazard sentiment has recovered strongly; hostility remains successful USD OIS (overnight scale swaps) markets which person stopped abbreviated of pricing an ‌aggressive Fed hiking cycle; and monthly planetary ⁠growth momentum is inactive positive," helium added.

At the aforesaid time, investors are present pricing successful astir a 48.5% accidental that the Fed could rise rates successful December, and a 98.8% accidental it maintains ⁠current rates astatine its adjacent gathering successful June, according to the CME FedWatch tool.

"Even if the Fed moves to awesome that it volition follow a neutral bias successful June, it whitethorn not beryllium capable to stabilize ostentation expectations and semipermanent U.S. Treasury yields," said Thierry ​Wizman, ​Macquarie Group’s planetary overseas speech and rates strategist.

"An accidental to alteration ​the Fed's rhetoric decidedly toward 'hawkish' volition travel with the ‌small flurry of Fed speeches, betwixt present and June 6," helium added.

The U.S. dollar index, which measures the greenback's spot against a handbasket of six currencies, was up 0.2% astatine 99.18, aft snapping a five-day winning streak connected Monday arsenic fears eased of an escalation successful the war.

The euro was down 0.2% astatine $1.1633.

YEN NEAR INTERVENTION ZONE

Against the yen, the U.S. dollar was up 0.15% astatine 159.10 yen aft authorities information showed connected Tuesday that Japan's system grew by an annualised 2.1% successful the ‌first quarter, supporting expectations for a Bank of Japan complaint hike successful ​June.

Japanese Finance Minister Satsuki Katayama told reporters connected Monday that Japan stands ​ready to enactment against excessive overseas speech volatility, portion ​ensuring that immoderate involution to enactment the yen and merchantability dollars is conducted successful a mode ‌that avoids pushing up U.S. Treasury yields.

Investors person been ​on ticker for further signs of ​intervention to enactment the yen, which is simply a small stronger than it was earlier Japanese officials past period began their archetypal foray into the marketplace successful astir 2 years.