Dollar 'regains its footing' as Middle East strikes drive safe-haven demand

The Dollar regained its footing this morning after edging lower on Tuesday, as fresh military strikes in the Middle East kept the risks to oil prices skewed to the upside and drove flows into safe havens.

Reports from Bloomberg that Iran has stepped up attacks on tankers in the Strait of Hormuz over the past few days have supported calls that a peace deal is unlikely any time soon. While the broader bond market rout clearly reflects more than just fears over oil, these concerns are undoubtedly a major driver of the sell-off in sovereign debt and, in turn, the rally in the Dollar.

Attention turns later today to the minutes of the September FOMC meeting. With last month's dot plot pointing to one further hike this year, markets will be looking for clues as to whether some officials see that coming as soon as the October meeting.

However, with PCE inflation and nonfarm payrolls both surprising to the downside since the meeting, we suspect a hike is no longer on the cards, regardless of the tone of the minutes. Waller, Kashkari and Musalem are all due to speak today.

While their general tone is likely to hint at the need for higher rates, we doubt any will explicitly signal the possibility of a hike later this month.