The US dollar held on to gains against major currencies early on Wednesday, buoyed by demand for safety as conflict between Israel and Iran kept investors on edge ahead of a Federal Reserve decision on interest rates later in the day.
Israel has pounded Iran over the past six days to halt its nuclear activity and has asserted the need for a change of government in the Islamic republic.
The US military is also bolstering its presence in the region, Reuters reported, sparking speculation of US intervention which investors fear could spread into a region replete with energy resources, supply chains and infrastructure.
Against this backdrop, the dollar has found support as a safe bid, firming roughly 1 percent against the Japanese yen, Swiss franc and euro since Thursday, helping it shave declines from earlier in the year.
The greenback had lost more than 8 percent earlier in the year due to eroding confidence in the US economy amid trade policies.
“The dollar is still a safe haven because of its depth and liquidity so, yes the structural forces are diluting the dollar safe-haven activities, but they’re not eroding them completely,” said currency strategist Rodrigo Catril at National Australia Bank.
“But in a scenario of big risk aversion, the dollar will still gain support but maybe not to the same it has managed in the past.”
The dollar firmed as much as 0.1 percent against the yen on Wednesday to touch a one-week top. It was last at 145.21 yen.
In early Asia trade, the Swiss franc was flat at 0.816 a dollar and the euro was up 0.1 percent at $1.149.
A broader index tracking the greenback against six other currencies was little changed after a 0.6 percent jump in the previous trading session.
