Yen, euro under pressure as Middle East conflict stokes energy concerns

The yen and euro were lower on Tuesday as the widening Middle East conflict focused attention on countries dependent on energy imports.

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The yen and euro were broadly lower on Tuesday as the widening Middle East conflict focused attention on countries dependent on energy imports and how central banks may respond to inflation pressures.

The dollar benefited from safe-haven demand as the U.S. and Israeli air war against Iran spilled out into neighboring countries. The euro steadied after sliding more than 1% as doubts swirled about when oil shipments from the region will be restored.

Japanese Finance Minister Satsuki Katayama suggested that currency market intervention remains an option to defend the yen, and a speech by Bank of Japan Kazuo Ueda later in the day will be closely watched for signals on future rate hikes.

“Europe and Japan stand out within the major economies, in that they still have a great need to import energy,” Rodrigo Catril, a currency strategist at National Australia Bank, said on a podcast. “History will tell you that currencies such as the yen and the euro would struggle to perform.”

The dollar index, which measures the greenback against a basket of currencies, traded at 98.49 after a 0.9% surge in the previous session. The euro edged up 0.07% to $1.1695.

The yen tacked on 0.09% to 157.2 per dollar after a 0.8% tumble in Monday’s session. Sterling was little changed at $1.3407.

Japan’s Katayama said on Tuesday that authorities have been in close contact with overseas financial officials and are closely monitoring financial markets with an “extremely strong sense of urgency.”

Israel attacked Lebanon in response to strikes by Hezbollah, and Tehran kept up its missile and drone attacks on Gulf states. Qatar halted its production of liquefied natural gas on Monday, prompting precautionary shutdowns of oil and gas facilities across the Middle East.

Europe and Japan are more exposed to higher energy costs than the U.S., which is a net energy exporter.

Concerns that higher inflation will delay the Federal Reserve’s next cut in interest rates also boosted the dollar.

A rate cut is no longer fully priced in until September, compared to previous expectations of July, based on pricing in the Fed funds futures market. Traders continue to price in two 25-basis-point cuts by year-end.

The Swiss National Bank said it was more willing to intervene in foreign currency markets after the conflict in the Middle East pushed the Swiss franc to its highest level against the euro in more than a decade.

The Australian dollar strengthened 0.21% to $0.7106. The kiwi added 0.1% to $0.5946.

In cryptocurrencies, bitcoin fell 0.78% to $68,889.68 and ether declined 0.6% to $2,031.20.