Dollar holds near 18-month high as geopolitical risks rise

The US dollar strengthened to near an 18-month high on Tuesday as geopolitical risks intensified following renewed attacks on energy infrastructure in the Middle East and Ukraine. The US dollar index, which gauges the greenback's strength against a basket of six currencies, settled at 102.56 in subdued Asian trading after a 0.3% gain on Monday. This level marks the highest since April of the previous year.

According to Chris Weston, head of research at Pepperstone Group Ltd in Melbourne, the dollar's rise is fueled by a mix of higher interest rates, robust US economic growth, and heightened demand for defensive USD exposure. Factors such as increasing energy costs and rising US Treasury bond yields have also bolstered the dollar's appeal against its major counterparts.

Meanwhile, the euro remained flat at $1.1159, while the British pound held steady at $1.3209. The US dollar also experienced a slight decline against the Japanese yen, trading at 158.435 yen, down 0.1% from the previous session. Data released by the Bank of Japan revealed wholesale prices rose by 6.8% year-on-year in September, slightly below market expectations of a 7.6% annual increase.

The Chinese yuan demonstrated resilience, trading near its strongest level in four years, holding steady against the US dollar at 6.6950 yuan in offshore markets. Meanwhile, the Australian dollar experienced a minor dip of 0.1% to $0.6956, remaining unchanged after the Reserve Bank of Australia's September board meeting minutes were released. The central bank indicated that inflation risks remain elevated, potentially prompting another interest rate hike this year if necessary.

The New Zealand dollar showed a slight decline of 0.1% to $0.5582, nearing an 18-month low. Cryptocurrencies also faced a downturn, with Bitcoin dropping 2% to $81,365.56, and Ether falling 3.8% to $2,422.06. Meanwhile, Brent crude futures experienced a 0.9% decrease, settling at $105.74, marking a partial retracement of Monday's 1.8% gain driven by attacks on energy infrastructure in Saudi Arabia and Ukraine.