Attention now shifts to the producer prices data, due later in the day, for confirmation that inflation pressures are moderating.
Washington and Tehran traded accusations on Thursday over a deal to reopen the strategically vital Strait of Hormuz, with the United States saying Iran had failed to meet its obligations and Iran countering that Washington had not delivered on ending a blockade of Iranian ports.
The U.S. dollar edged higher to its strongest level in nearly two weeks on concerns about the stalemate in Iran. High energy prices are expected to weigh more heavily on the economies of the euro zone and Japan, both large energy importers, while the United States is seen as relatively insulated from oil shocks.
The dollar index =USD, which measures the greenback against a basket of currencies including the yen and the euro, was down 0.08% at 99.90 after hitting 100.08, its highest level since July 31.
The euro, which by contrast benefits from lower oil prices, was up 0.12% at $1.1537. EUR=EBS
U.S. Treasury yields eased slightly, with analysts saying the U.S. federal budget deficit's rise to $432 billion is likely to add upward pressure on long-term borrowing costs.
“I would still be careful chasing rallies (in U.S. Treasuries), especially in the back end, where supply, fiscal concerns and oil-related term premium remain hard to dismiss,” Mizuho strategist Evelyne Gomez-Liechti said, recalling that PPI data is the next test, alongside jobless claims and the 30-year U.S. Treasury auction.
U.S. 30-year Treasury yields US30YT=RR were not far from their highest level in almost 30 years, down 1 basis point at 5.24%. They hit 5.2811% on July 31, their highest since summer 2007.
Against the yen JPY=, the dollar softened 0.08% to 159.33. Expectations that the Bank of Japan would hike interest rates next month, earlier than previously expected, were reinforced by Japan's producer price index, which rose 7.2% in July from a year earlier.
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