- US inflation, Fed Chair Warsh's congressional testimony in focus
- Middle East tensions lift oil prices, add to inflation worries
- Yen remains under pressure, keeping traders on intervention watch
- Japan may consider pension allocation tweak if environment changes, finance minister says
TOKYO, July 14 (Reuters) - The dollar steadied on Tuesday ahead of U.S. inflation data, with Middle East tensions lifting oil prices while the yen was calm amid caution over possible intervention and after policymakers' comments on state pension fund allocations.
The dollar index , which measures the greenback against a basket of currencies including the yen and the euro, eased 0.09% to 101.18.
Inflation risks remain in the spotlight with the release of U.S. June CPI data on Tuesday, June PPI gauges the following day, and Fed Chair Kevin Warsh's first semiannual testimony before Congress.
Concerns over escalating tensions between the United States and Iran returned to the fore, with President Donald Trump saying on Monday Washington was reinstating a naval blockade on Tehran and would ensure the Strait of Hormuz remained open for a fee following fresh exchanges of missile and drone strikes.
U.S. and Iranian forces exchanged heavy missile and drone assaults at the weekend, with Tehran striking U.S. facilities in states across the Gulf on Sunday and saying it had again closed the vital Strait of Hormuz shipping route.
Oil prices climbed nearly 3% on Tuesday to their highest point in four weeks after the U.S. said it would reimpose a naval blockade, heightening uncertainty about energy flows.
The euro was up 0.1% against the dollar at $1.1392 and sterling gained 0.09% to $1.3358.
Meanwhile, Federal Reserve Governor Christopher Waller said rates may need to rise "in the near term" if data shows inflation remaining well above the central bank's 2% target.
A core CPI reading of 0.3% or higher would likely imply, depending on PPI data due later in the week, that the Fed's preferred core PCE deflator is also running at 0.3% or above, said Ray Attrill, head of FX strategy at National Australia Bank, in a podcast.
"That may well be a trigger for a Fed rate hike as early as the July meeting," Attrill said.
Economists' median estimate for the June core CPI was 0.2% growth month-on-month.
Fed funds futures are pricing in about 43 basis points of rate hikes by the U.S. central bank this year, according to LSEG data.
YEN UNDER PRESSURE AGAIN
The Japanese yen edged 0.1% higher at 162.30 per dollar on Tuesday, even though traders remained on alert for possible intervention from authorities in Tokyo as the currency languished near 40-year lows.
The Japanese currency briefly strengthened following comments from Finance Minister Satsuki Katayama that Tokyo may consider adjusting state pension fund asset allocations if the environment surrounding asset management changes sharply.
Health Minister Kenichiro Ueno told a separate press conference on Tuesday that the ministry would examine reviewing the Government Pension Investment Fund's (GPIF) asset allocation if needed, but downplayed the prospect of any near-term changes.
The yen and Japanese bonds rallied on Friday after Katayama said the government would seek ways to encourage pension funds, including the GPIF, to make greater investments in Japanese financial assets.
"In order for yen-buying pressure from a review of GPIF's asset allocation to be sustained, the decision would likely need to be made quickly, and the increases in the allocation to domestic assets would probably need to be at least 5 percentage points" in stocks and bonds each, said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.
"If the increases are only modest, or if the decision-making process takes time, any additional yen buying is likely to be limited," he said in a note.
The Australian dollar gained 0.26% to $0.6934 against the greenback. New Zealand's kiwi strengthened 0.75% versus the dollar to $0.5791, with investors ramping up wagers for rate hikes.
In cryptocurrencies, bitcoin rose 1.01% to $62,776.09. Ether gained 1.29% to $1,788.44.
Reporting by Satoshi Sugiyama; Editing by Jacqueline Wong and Thomas Derpinghaus
Source: Reuters