Dollar edges lower as U.S.-North Korea tensions weigh

© Reuters. – The dollar came under pressure on Tuesday, as rising tensions between the U.S. and North Korea kept demand for safe haven currencies steady while a top Federal Reserve official urged caution over further rate increases until the pace of inflation improved.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, fell by 0.36% to 92.24.

The dollar made a subdued start to the U.S. trading week, following the Labor Day public holiday Monday, as investors fled riskier assets in the wake of North Korea’s successful test of a hydrogen bomb over the weekend.

The U.S. warned on Monday that North Korea was “begging for war” but asked the UN to respond to Pyongyang’s test of its largest and most powerful nuclear bomb with tougher sanctions to deter the regime from conducting further nuclear tests.

Rising geopolitical uncertainty stoked demand for safe haven currencies like the yen and Swiss franc, weighing on the greenback.

USD/JPY fell 0.89% to Y108.74 while USD/CHF fell 0.29% to 0.9554.

Investors shifted focus to monetary policy later in the session, after Fed Governor Lael Brainard urged the U.S. central bank to delay raising interest rates as the pace of inflation remains subdued.

Brainard’s comments come a few hours ahead of speeches by Federal Reserve Bank of Minneapolis President Neel Kashkari and Federal Reserve Bank of Dallas President Robert Kaplan due later in the session.

The euro and sterling benefited from the slump in the greenback with latter surging above $1.30 for the first time in three weeks.

GBP/USD rose 0.69% to $1.3017 while EUR/USD rose 0.14% to $1.1913. The rise in the euro comes ahead of a European Central Bank interest rate decision due Thursday.

USD/CAD fell 0.32% to C$1.2375 as investors look ahead to the Bank of Canada’s interest rate decision on Wednesday, widely expected to remain unchanged at 0.75%.

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