Dollar holds near 18-month high as geopolitical risks rise

On Tuesday, the US dollar maintained its strength near an 18-month peak as geopolitical tensions escalated due to fresh attacks on energy infrastructure in the Middle East and Ukraine. The US Dollar Index, which gauges the greenback's performance relative to six other currencies, stood at 102.56, a modest improvement from Monday's close, which saw a 0.3% increase.

The dollar is presently hovering near its highest levels since April of the previous year. Oil prices experienced a slight decline as Russia's diesel supply prospects were weighed against risks stemming from supply disruptions in the Gulf. "The confluence of higher relative interest rates, robust US economic growth, and escalating demand for defensive USD exposure continues to furnish a potent set of tailwinds for the dollar," stated Chris Weston, the head of research at Pepperstone Group Ltd, based in Melbourne, Australia.

The surge in energy costs and the escalation of US Treasury bond yields have bolstered the dollar's position against its primary counterparts. Rising tensions in French bond markets have weakened the euro. The euro remained flat at $1.1159 on Tuesday, while the British pound held steady at $1.3209. Conversely, the US dollar was 0.1% weaker against the yen, trading at 158.435 yen following the release of data from the Bank of Japan.

The data revealed that wholesale prices rose by 6.8% year-on-year, falling short of the median market prediction of a 7.6% annual increase. The Chinese yuan traded close to its strongest levels in four years, remaining steady against the US dollar at 6.6950 yuan in offshore trade. The Australian dollar saw a 0.1% decrease, settling at $0.6956, a figure unchanged following the release of minutes from the Reserve Bank of Australia's September board meeting.

At the meeting, the central bank unanimously decided to raise rates for the fourth time in 2023. Asian equities faced a decline as investors focused on upcoming earnings reports and geopolitical developments. The central bank remains apprehensive about the persistence of inflation, indicating that there is still room for a potential fifth rate hike this year if necessary.

The New Zealand dollar slipped 0.1% to $0.5582, trading near an 18-month low. Meanwhile, Bitcoin fell by 2% to $81,365.56, while Ether dropped 3.8% to $2,422.06. Brent crude futures experienced a 0.9% drop, reaching $105.74, partly reversing Monday's 1.8% surge that was fueled by attacks on energy facilities in Saudi Arabia and Ukraine.