Dollar near one-month low as concerns over oil prices remain subdued

The dollar hovered near its one-month low on Thursday as investors weighed subdued U.S. inflation data, which dampened rate-hike expectations, against the risk of ​a further oil price spike that could support the greenback, Reuters reported.

U.S. Treasury yields fell on Wednesday after a second consecutive day of data ‌pointed to moderating inflation pressures, undermining expectations for a Federal Reserve tightening move and support for the greenback.

The U.S. economy is less exposed to energy shocks than many of its peers, helping attract safe-haven flows into the dollar when oil prices rise, often at the expense of the euro and yen. But diplomatic breakthroughs in the Middle East tend to weaken the greenback against both currencies, as lower oil prices improve the outlook for energy-importing economies.

Some investors said the renewed hostilities between the United States and Iran were intended to gain leverage in negotiations aimed at turning an interim deal into a lasting peace, and that the situation could ⁠ultimately be de-escalated if or when the U.S. secures a stronger negotiating position.

However, Arend Kapteyn, an economist at UBS, said China's import compression had been crucial and would remain key to stabilising oil markets.

"Chinese import volumes have fallen by 42% since March," Kapteyn said.

"June's data suggest that even as shipping conditions through the Strait improved, before the latest escalation, China showed little urgency to rebuild inventories," she added.

Oil prices turned lower on Thursday as traders took profits while assessing the risks from a new wave of U.S. strikes on Iranian military installations.

The U.S. dollar index , which tracks the currency against six peers, was little changed at 100.50, hovering near its lowest since June 18. It has fallen 0.8% over the previous two sessions and is on track for a weekly decline.

Chances for a Fed hike in July were cut to 11%, versus a 45% implied probability at the start of the week. Markets still see even odds of at least a 25 basis-point increase in September, according to Fed funds futures prices ‌via CME ⁠Group.