Investing.com – The dollar dipped against a basket of the other major currencies on Wednesday amid heightened tensions in the Korean peninsula and renewed doubts over the outlook for higher U.S. interest rates.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was at 92.18 by 08:35 AM ET (12:35 GMT).
Investors remained on edge after South Korea’s President Moon Jae-in warned that the crisis on the Korean peninsula risks becoming “uncontrollable”, following Sunday’s nuclear test by North Korea.
The dollar was steady against the safe haven yen, with USD/JPY last at 108.84 after hitting an intra-day low of 108.45 earlier, not far from the four-and-a-half month trough of 108.26 set last Tuesday.
The dollar was near one-week lows against the Swiss franc, with USD/CHF at 0.9554.
The Swiss franc and the yen are often sought in times of geopolitical tension or market turbulence because both countries have large current account surpluses.
The dollar was also pressured lower after comments by a Federal Reserve official on Tuesday revived doubts over prospects for a third rate hike this year.
Fed governor Lael Brainard said the U.S. central bank should be cautious about raising interest rates amid the economy’s “persistent failure” to reach its 2% inflation target.
Expectations that rates will remain on hold, compounded by political turmoil in Washington have driven the dollar index down around 10% so far this year.
The dollar showed little reaction to data on Wednesday showing that the U.S. trade deficit widened less than expected in July as both imports and exports fell.
The trade deficit rose to $43.7 billion the Commerce Department reported, compared to expectations for $44.6 billion.
The euro pushed higher, with EUR/USD rising 0.19% to 1.1937, holding below the two-and-a-half year high of 1.2069 set last week as investors awaited the European Central Bank’s monetary policy announcement on Thursday.
Elsewhere, the Canadian dollar was lower, with USD/CAD rising 0.24% to 1.2405, off Tuesday’s two-year low of 1.2335 ahead of the Bank of Canada’s interest rate decision later in the trading day.
Data last week showing that Canada’s economy grew at the fastest rate in almost six year in the second quarter has bolstered expectations for a rate hike ahead of the meeting.