GLOBAL MARKETS-Wall Street dips as yen, oil gain amid Middle East strife

Oil stole the spotlight on Tuesday, but the yen's surge may prove the bigger story for global markets. Because of its status as a low-yielding currency, traders have borrowed yen in earnest to fund purchases of higher-yielding assets across currencies, bonds and equities, a strategy known as the carry trade.

In the last week alone, the yen JPY= has gained nearly 4%, its largest week-on-week increase since July 2024. On Tuesday, it was trading around 154.1, leaving the dollar roughly unchanged on the day.

"Despite short-term fundamentals suggesting the move is overdone, it remains risky to stand in its way, particularly given the scope for further carry trade unwinding," ING strategist Francesco Pesole said.

The dollar index =USD, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.06% to 98.88.