The U.S. dollar found its footing at the start of Asian trading on Thursday after the Federal Reserve kept its policy interest rate on hold and Chair Kevin Warsh left markets guessing about how divisions on its rate-setting committee would resolve.
The dollar index, which measures the greenback's strength against six currencies, nudged up 0.1% to 100.89 after the U.S. said it was conducting air strikes in Iran.
The British pound was 0.1% weaker at $1.3355 ahead of a Bank of England interest rate decision on Thursday, with market participants expecting no change. The euro slid 0.1% to $1.1457.
The Australian dollar was steady along with its New Zealand counterpart at $0.6959 and $0.5795 respectively, while the yen was level at 163.455 yen per U.S. dollar.
Geopolitical developments offset earlier weakness in the greenback, which had fallen to its weakest since July 20 after the Fed decision.
"Despite three committee dissents in favour of a July hike, Chair Warsh stopped short of flagging an imminent hike, echoing June's tone," said IG market analyst Fabien Yip in Sydney. "That is starting to unsettle investors: a Fed unwilling to commit to further tightening raises the question of whether it can keep long-term inflation expectations anchored."
Treasury bonds reacted violently to the Fed decision, with the 30-year yield climbing to its highest in almost two decades.
Fed funds futures are pricing in an implied 42.6% probability that the Fed will hold its rate at its next two-day meeting ending September 16, compared with a 24% chance before the Fed's latest meeting, the CME Group's FedWatch tool showed.
"We continue to expect the Fed to remain on hold, but we have concerns that markets may react badly down the road to a perception that it is not moving when it should," said Steve Englander, global head of G10 FX research at Standard Chartered in New York. "There was considerable commentary by market participants on the vagueness of his answers to questions that in the past would have been answered directly."
In cryptocurrencies, bitcoin was up 0.3% at $63,650.06, while ether was 0.7% higher at $1,896.66.
