The dollar clung to gains against major peers on Thursday, recovering from a near one-month low on expectations that the U.S. economy will remain resilient, the Federal Reserve will hold rates steady this month and oil price swings may calm.
U.S. unemployment benefits filings fell last week, suggesting continued labor market stability, while U.S. retail sales increased marginally in June as lower gasoline prices weighed on receipts at service stations.
The U.S. economy is less exposed to energy shocks than many of its peers, helping attract safe-haven flows into the dollar when oil prices rise, often at the expense of the euro and yen.
"After softer-than-expected CPI and PPI prints pressured the dollar earlier this week, today's retail sales and claims data, alongside further intensification in the Middle East, have provided modest support," said Uto Shinohara, senior investment strategist at Mesirow Currency Management.
"With seasonal and World Cup-related distortions clouding today's data, and geopolitical developments continuing to have a relatively restrained market impact, gains in the dollar, Treasury yields and oil have remained relatively measured so far."
Oil prices LCOc1 fell 0.8% to $84.29 on Thursday, still close to their highest since mid-June as the escalating U.S.-Iran conflict heightened energy supply concerns after Tehran asked Yemen's Houthis to stand ready to disrupt shipping through the Red Sea.
"Maybe the dollar is finding a safe haven bid," said Marc Chandler, chief market strategist at Bannockburn Capital Markets. "Iran threat has been a longstanding fear since the war began. The U.S. escalation has some limits and Iran is demonstrating it."
The U.S. dollar index =USD, which tracks the currency against six peers, rose 0.31% to 100.76, off its lowest since June 18 but still on track for a weekly decline.
Chances for a Fed hike in July stood at 10%, versus a 45% implied probability at the start of the week. Markets see 48% odds of at least a 25 basis-point increase in September, according to Fed funds futures prices via CME Group.
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