Dollar holds near 18-month high as geopolitical risks rise

The US dollar held its ground at the start of Asian trading on Tuesday after a holiday for some markets in the US, as geopolitical risks rose after renewed attacks on energy infrastructure in the Middle East and Ukraine.

The US dollar index, which measures the greenback’s strength against a basket of six currencies, was at 102.56 in subdued Asian trading after closing up 0.3% on Monday.

The currency is hovering around its highest levels since April last year.

“The combination of higher relative interest rates, stronger US growth and increasing demand for defensive US exposure continues to provide a powerful set of tailwinds for the greenback,” said Chris Weston, head of research at Pepperstone Group Ltd in Melbourne.

Rising energy costs and climbing US Treasury bond yields have supported the dollar against its major peers lately, with turmoil in French bond markets sapping the strength of the euro. The spread between French and German bonds widened on Monday.

The euro was flat at US$1.1159 on Tuesday, while the British pound was also steady at US$1.3209.

Against the yen, the US dollar was 0.1% weaker at ¥158.435 after the release of data from the Bank of Japan, which showed wholesale prices rose 6.8% in the year to September, falling short of the median market forecast for a 7.6% annual increase.

The Chinese yuan traded near its strongest levels in four years, holding steady against the US dollar at ¥6.6950 in offshore trade.

The Australian dollar was 0.1% weaker at US$0.6956, little changed after the release of minutes from the Reserve Bank of Australia’s September board meeting at which it voted unanimously to raise rates for the fourth time this year.

The central bank said it still sees risks that inflation could prove more stubborn than assumed, leaving the door open to a fifth hike this year if needed.

The New Zealand dollar was down 0.1% at US$0.5582, trading near an 18-month low.

Bitcoin was down 2% at US$81,365.56, while ether fell 3.8% to US$2,422.06.

Brent crude futures slid 0.9% to US$105.74, partially retracing Monday’s 1.8% gain that was driven by attacks on energy infrastructure in Saudi Arabia and Ukraine.

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