The dollar traded near a one-week high on Wednesday as renewed uncertainty in the Middle East and stronger-than-expected US inflation data continued to support demand for the safe-haven currency, while investors closely monitored movements in the Japanese yen.

The euro fell 0.26% to $1.17095, while the British pound slipped 0.1% to $1.3524.

Meanwhile, the risk-sensitive Australian dollar held steady at $0.72410, while the New Zealand dollar declined 0.3% to $0.59345.

The US Dollar Index, which measures the greenback against a basket of six major currencies, rose 0.2% to 98.501 points, its highest level since May 5.

In energy markets, oil prices fell 1% but remained above the $100-per-barrel mark, with Brent crude trading near $106.6 per barrel.

Hopes for a Middle East peace agreement faded after US President Donald Trump said the ceasefire with Iran was on life support following Tehrans rejection of a US proposal aimed at ending the war.

Trump also said on Tuesday that he does not believe he needs Beijings help to end the war with Iran, ahead of his expected meeting with Chinese President Xi Jinping later this week.

Whats happening in the Strait of Hormuz is the key driver in the background, said Tommy von Brmsen, FX strategist at Handelsbanken in Stockholm, adding that a prolonged crisis would place central banks in a more difficult position.

US inflation continues to rise

Data showed that the US Consumer Price Index rose 3.8% in the 12 months through April, marking the largest annual increase since May 2023, as the oil price shock caused by the war continued to push prices higher.

US two-year Treasury yields, which typically track interest rate expectations, remained near seven-week highs at 3.9812%, while benchmark 10-year yields held around 4.461%.

Markets have now largely ruled out the possibility of Federal Reserve rate cuts this year, while expectations for at least a 25-basis-point hike in December climbed to 35%, according to CME Groups FedWatch Tool.

Currency analysts at Commerzbank said the magnitude of the inflation increase was both surprising and significant, especially with Federal Reserve Chair Jerome Powells term set to expire on Friday.

The US Senate on Tuesday confirmed Kevin Warsh as a member of the Federal Reserve Board for a 14-year term, in a move widely seen as an important step toward potentially succeeding Powell.

Commerzbank analysts added: The key question over the coming months will be whether Warsh can gather enough support within the Federal Open Market Committee to push through an early rate cut.

Japanese yen under scrutiny

The Japanese yen weakened 0.1% to 157.77 per dollar after a sudden rally in the currency on Tuesday sparked speculation that Japanese authorities may have conducted a so-called rate check, a move that often precedes direct intervention in currency markets.

US Treasury Secretary Scott Bessent said on Tuesday that both the United States and Japan view excessive currency volatility as undesirable, comments investors interpreted as implicit support for Tokyos recent efforts to support the yen.

However, Edana Abio, portfolio manager at First Eagle Investments, said: My concern is that intervention alone will not be enough to strengthen the yen at this stage.

Separately, the Bank of Japan said Wednesday that Bessent did not meet BOJ Governor Kazuo Ueda during his visit to Tokyo.

Meanwhile, the Chinese yuan traded near 6.79 per dollar, its strongest level since February 2023, ahead of Trumps visit to Beijing.