Dollar edges higher after data as yen holds near 40-year low

By Chuck Mikolajczak

NEW YORK, July 7 (Reuters) - The dollar rose modestly on Tuesday following consecutive sessions of slight declines while the yen held near a four-decade low, as investors continued to watch for signs of possible intervention by Japanese authorities to support the currency.

The greenback showed a muted reaction to reports that Iran fired missiles at ships in the Strait of Hormuz overnight, which hit two tankers in the waterway, including an LNG carrier at risk of explosion. Qatar blamed Iran.

U.S. crude rose 2.8% to $70.47 a barrel, and Brent climbed to $74.15 per barrel, up 3% on the day, on renewed concerns over supply disruptions.

"Ceasefires, by their very nature, fray, but it doesn't mean that they're over. And I think that neither the U.S. nor Iran are looking to extend the conflict, so that's what the market's got confidence in," said Marc Chandler, chief market strategist at Bannockburn Capital Markets in New York. "The market's just sort of churning well-worn ranges."

The dollar index, which measures the greenback against a basket of currencies, advanced 0.09% to 100.95, with the euro down 0.11% at $1.1427.

Federal Reserve Bank of New York President John Williams said in a television interview on Tuesday that he has grown a little less worried about the state of price pressures in the economy due to the recent retreat in energy prices, which he expects to continue.

Meanwhile, European Central Bank Governing Council member and Bank of Italy Governor Fabio Panetta said the outlook for the euro zone economy remains fragile, and called for monetary policy decisions to be tested against a range of scenarios given the major shifts in the global economy.

On the data front, the Commerce Department said the U.S. trade gap jumped 42.2% to $77.6 billion, compared with the estimate of economists polled by Reuters calling for the deficit to be $78.5 billion, as the AI investment surge helped drive imports of capital goods to a record high.

The Japanese yen strengthened 0.1% against the greenback to 161.89 per dollar, after touching 161.66, though it remained not far from a 162.83 trough hit last week.

The yen found some support late last week as traders grew leery of a possible shift in Japan's intervention strategy, though they said the currency's sudden jump on Thursday was not indicative of official action.

FED HIKE BETS RECEDE

Investors will eye the minutes from the Federal Reserve's June meeting, the first under new Chairman Kevin Warsh and scheduled for release on Wednesday, for policymakers' views on forward guidance from the central bank.

On Monday, Federal Reserve Governor Christopher Waller said that forward guidance can be a valuable tool under the right circumstances, but can also be a problem when used improperly.

A New York Federal Reserve report showed that U.S. consumers grew more concerned about near-term inflation pressures in June even as their worries about gasoline prices eased and they were more upbeat about current and future personal finances.

Investor expectations of U.S. rate hikes this year have waned slightly following an underwhelming jobs report last week that came in far below expectations.

Investors are now pricing in about 26 basis points worth of Federal Reserve rate hikes by December, down from about 38 bps a week ago, according to LSEG data.

Sterling weakened 0.13% to $1.3372 after earlier hitting a three-week high of $1.3401.

(Reporting by Chuck Mikolajczak; additional reporting by Rae Wee in Singapore and Harry Robertson in London; Editing by Thomas Derpinghaus, Susan Fenton, Will Dunham and Ros Russell)