Dollar trades higher after mixed US data, but Mideast conflict keeps mood tense

By Laura Matthews and Lucy Raitano

NEW YORK/LONDON (Reuters) -The U.S. dollar pared losses to trade firmer on the yen on Tuesday, after economic data showed American consumers growing more cautious as trade and inflation uncertainty lingered ahead of the Federal Reserve's decision on interest rate later this week.

U.S. retail sales were softer than expected in May, but consumer spending remained supported by solid wage growth.

The dollar initially softened on the print, but quickly reversed those loses as the market digested the data's mixed picture, removing strength the yen had gained following the Bank of Japan's (BOJ) rate decision earlier.

"The weaker headline retail sales release and last week's softer CPI print add more fuel to rate cut speculation, including calls from (U.S. President) Trump for a 100-bps cut," said Uto Shinohara, senior investment strategist at Mesirow Currency Management. "However, the full inflationary impact of tariffs has yet to pass through."

Broader risk sentiment remained fragile with the Israel-Iran conflict entering its fifth day.

The BOJ delivered little surprise to markets at the conclusion of its two-day monetary policy meeting, as it stood pat on rates and laid out a new plan to decelerate the pace of its balance sheet drawdown next year in the face of rising risks such as the Middle East conflict and U.S. tariffs.

The yen swung between losses and gains after the decision, turning negative during Governor Kazuo Ueda's press conference, with the dollar last up 0.25% on the yen at 145.17 yen.

Japanese Prime Minister Shigeru Ishiba and U.S. President Donald Trump have yet to reach a trade deal.

Developments in the Middle East are keeping the mood tense, with Trump on Tuesday saying he wanted a "real end" to the nuclear dispute with Iran, and indicating he may send senior American officials to meet with the Islamic Republic.

It follows news on Monday from the White House that Trump left the Group of Seven summit in Canada a day early due to the situation in the Middle East, as the president has requested that the National Security Council be prepared in the situation room.

"The market is shifting its focus back and forth to the war in the Middle East and the trade war," said Adam Button, chief currency analyst, ForexLive. "So, I think the market struggles to keep the focus on economic data, even with the Fed coming tomorrow."

The escalations between Israel and Iran have sent the price of Brent crude higher.

Elsewhere, the euro was down 0.37% at $1.1516.

The pound was last down 0.5% against the dollar at $1.3506. Trump signed an agreement on Monday formally lowering some tariffs on imports from Britain as the countries continue working toward a formal trade deal.

The risk-sensitive Australian dollar was down 0.22% at US$0.65103. Meanwhile, against a basket of currencies, the dollar rose 0.3% to 98.49.

The Federal Reserve's policy decision on Wednesday is taking centre stage for FX market watchers. Expectations are for the central bank to keep rates on hold, though the focus will be on any guidance regarding the rate outlook.

"The implications for the Federal Reserve's policy trajectory are mixed, and likely won't become clear for a few months yet," said Karl Schamotta, chief market strategist, Corpay.

"At the moment, there's little risk to waiting before launching another round of rate cuts, so we expect an incrementally-hawkish message to emerge from tomorrow's meeting."

Meanwhile, investors are also looking ahead to other central bank decisions including from the Bank of England and Sweden's Riksbank later this week to guide the next move in markets.

Currency

bid

prices at

17 June​

02:29

p.m. GMT

Descripti RIC Last U.S. Pct YTD Pct High Low

on Close Change Bid Bid

Previous

Session

Dollar 98.33 98.179 0.17% -9.36% 98.36 98.0

index 35

Euro/Doll 1.1537 1.1559 -0.19% 11.44% $1.158 $1.1

ar 535

Dollar/Ye 144.97 144.79 0.14% -7.86% 145 144.

n 445

Euro/Yen 167.25​ 167.31 -0.04% 2.47% 167.61 166.

98

Dollar/Sw 0.814 0.8139 0.01% -10.31% 0.8149 0.81

iss 21

Sterling/ 1.3518 1.3576 -0.41% 8.1% $1.3577 $1.3

Dollar 517​

Dollar/Ca 1.3589 1.3569 0.17% -5.49% 1.3594 1.35

nadian 58

Aussie/Do 0.6517 0.6524 -0.08% 5.36% $0.6543 $0.6

llar 503

Euro/Swis 0.9391 0.9406 -0.16% -0.02% 0.9419 0.93

s 86

Euro/Ster 0.8533 0.8514 0.22% 3.13% 0.8537 0.85

ling 12

NZ 0.6057 0.6059 0.07% 8.35% $0.608 0.60

Dollar/Do 47

llar

Dollar/No 9.8863​ 9.914 -0.28% -13.02% 9.9272 9.86

rway 22

Euro/Norw 11.4105 11.4589 -0.42% -3.05% 11.4679 11.4

ay 11

Dollar/Sw 9.49 9.4846 0.06% -13.86% 9.5003 9.43

eden 77

Euro/Swed 10.9542 10.9632 -0.08% -4.47% 10.9774 10.9

en 248

(Reporting by Laura Matthews in New York, Lucy Raitano in London and Rae Wee in Singapore; Editing by Kim Coghill, Saad Sayeed and Susan Fenton)

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