Bas Kooijman is the CEO and Asset Manager of DHF Capital S.A

(MENAFN- MENAFNEditorial) The US dollar edged lower on Wednesday, trading near a multi-week low, with much of the weakness stemming from external factors. In Japan, the yen strengthened amid expectations of tighter monetary policy. The euro added to the pressure ahead of the European Central Bank's interest rate decision. A 25-basis-point increase is widely expected, while markets continue to anticipate another hike before the end of the year, placing additional selling pressure on the greenback.
Despite this external pressure, elevated US Treasury yields could limit the dollar's downside risk. Persistent tensions in the Middle East have kept oil prices on an upward trend, sustaining inflation concerns. Higher energy prices could reinforce expectations that US monetary policy will need to remain restrictive, helping to keep yields elevated. At the same time, any further deterioration in the geopolitical backdrop could strengthen safe-haven demand for the greenback.
Attention now turns to Thursday's producer price index and Friday's consumer inflation report. Markets expect an interest rate hike at next week's Federal Reserve meeting. Firmer inflation could reinforce expectations of further tightening later in the year, lifting yields and supporting the dollar. Softer readings, by contrast, could encourage traders to scale back those expectations and renew downward pressure on the currency.

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