Dollar edges higher; Fed officials question need for more hikes

The U.S. dollar edged higher Tuesday, supported by its safe-haven status as violence in the Middle East continued, but gains were limited after dovish comments from a couple of Fed officials.

At 03:05 ET (07:05 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher at 105.925.

Safe havens continue to see demand
The Israeli military announced earlier Tuesday that more than 200 targets were struck overnight in Gaza as the country responded to the weekend attacks by the Palestinian group Hamas.

Traders are bracing for a drawn-out conflict, with more than 1,500 lives already having been lost, with Israel likely to launch its first ground offensive in Gaza since 2014.

This means that the dollar is likely to continue to see support, while USD/JPY has retreated from the 150 level even though the yen is slightly weaker Tuesday, at 148.89.

USD/ISR fell 0.2% to 3.9375, with the Israeli shekel steadying just off an almost eight-year low, after the central bank promised $30 billion in foreign exchange selling.

Higher U.S. yields could negate further interest rate hikes
However, the dollar’s gains are limited after a couple of Fed officials indicated that the recent selloff in bonds might lessen the need for further interest rate hikes.

“If long-term interest rates remain elevated because of higher term premiums, there may be less need to raise the Fed funds rate,” said Dallas Fed president Lorie Logan, while Fed Vice Chair Philip Jefferson said the central bank would need to “proceed carefully” given the recent rise in yields.

There are a number of Fed officials due to speak later Tuesday, ahead of the release of the minutes of the September monetary policy meeting on Wednesday and then Thursday’s U.S. CPI data.

Euro drifts lower ahead of Lagarde’s speech
EUR/USD fell 0.1% to 1.0561, ahead of the release of the Italian industrial production figures for August.

This is expected to show an annual fall of 5.0%, a deterioration from the previous month’s 2.1% drop, an indication of the difficulties the region is having the day after the equivalent German release added fuel to fears of a potential recession.

European Central Bank President Christine Lagarde is set to speak later in the session as the IMF and World Bank annual meetings in Morocco get going.

Elsewhere, GBP/USD fell 0.1% to 1.2222, AUD/USD dropped 0.1% to 0.6405 and NZD/USD fell 0.2% to 0.6011, with these risk-sensitive currencies still under pressure.