TOKYO (Reuters) - The dollar fluttered in a narrow range in Asia on Tuesday, caged by caution ahead of this week’s U.S. Federal Reserve meeting and concern about the developing crisis in Iraq.
U.S. and Iranian officials conferred about the Iraqi crisis on the sidelines of a meeting in Vienna, sources said. Meanwhile, Washington said it could launch air strikes if needed to quell the Sunni Islamist rebellion.
U.S. President Barack Obama notified Congress under the War Powers Resolution on Monday that the United States would deploy up to 275 military personnel to provide support and security for U.S. staff in Iraq.
“While much of Iraq’s vital energy infrastructure and fields are in Shia-dominated southern Iraq, the negative news suggests the Iraqi government will have trouble controlling the situation,” strategists at Barclays said in a note to clients.
An interruption to Iraq’s oil exports and sustained rise in global oil prices could eventually sap growth.
The dollar was steady on the day at 101.83 yen JPY=, holding above a two-week low of 101.60 yen marked on Thursday.
The euro was slightly higher at 138.28 yen EURJPY=R, but remained not far from a four-month low of 137.70 yen touched overnight.
Against the dollar, the common currency was treading water at $1.3575 EUR=, flat from the previous session.
U.S. Treasury yields also stuck close to their recent ranges ahead of the two-day Fed meeting that will begin later in the session, with the benchmark 10-year yield US10YT=RJR at 2.598 percent, nearly flat from Monday’s U.S. close of 2.599 percent.
The U.S. central bank is seen announcing a further reduction in its monthly bond purchasing program, but most market participants do not expect an interest rate hike until mid-2015.
The International Monetary Fund cut its forecast for U.S. growth on Monday and predicted the economy would not reach full employment until the end of 2017, which would suggest interest rates might be held near zero for longer than financial markets expect.
But Monday’s data painted an upbeat picture of the U.S. economy in the present quarter following weak start to the year due to a harsh winter. U.S. manufacturing output rose in May and June factory activity in New York state accelerated sharply, while confidence among homebuilders perked up this month.
Growth estimates for the April-June quarter range as high as 4 percent.
Sterling was slightly down at $1.6976 GBP=D4, after it climbed above $1.70 against the dollar for the first time in nearly five years on Monday on expectations that Britain might become the first major economy to tighten monetary policy since the 2008 financial crisis.
The pound gained more than 1 percent since Bank of England Governor Mark Carney signalled the new tightening outlook on Thursday. His stance means the market will be paying close attention to the minutes of the BoE’s June policy meeting on Wednesday.
Editing by Shri Navaratnam