Dollar holds firm as Middle East hostilities lift oil

The dollar remained stable on Wednesday as tensions in the Middle East led to a rise in oil prices, reigniting worries about inflation. The currency's appeal as a safe-haven asset was bolstered by higher Treasury yields and growing expectations of a Federal Reserve rate increase, despite recent economic data falling short of expectations.

The United States launched airstrikes on Iran on Tuesday, triggering Iranian counterattacks in the most significant escalation in weeks. Oil prices jumped nearly 1 percent early on Wednesday, with Brent futures increasing 0.92 percent to $95.52 a barrel and U.S. West Texas Intermediate (WTI) crude rising 0.89 percent to $91.02. Kumiko Ishikawa, a senior FX analyst at Sony Financial Group, emphasized the need for ongoing caution regarding the Middle East situation.

The dollar index, which evaluates the greenback against a basket of currencies, including the yen and euro, stood at 99.67. Economic indicators released overnight for July, such as JOLTS job openings and the August ISM manufacturing index, were below forecasts. However, market expectations of a Federal Reserve rate hike have been reinforced, with a 67 percent chance of a September increase, up from around 40 percent a week prior, according to CME Group's FedWatch tool.

The U.S. data, such as the upcoming jobs report and August's consumer price inflation figures, could be offset by heightened tensions in the Middle East if the economic data are weak.