July 9, 2008 / 10:59 AM / in 11 years

FOREX-Dollar knocked by geopolitical tensions, oil

* Tensions in Iran, Turkey weigh on dollar

* Oil resumes climb as geopolitical worries grow

* Dollar index down 0.25 pct at 72.775

(Changes byline, updates prices, adds quotes)

By Toni Vorobyova

LONDON, July 9 (Reuters) - The dollar eased on Wednesday as oil prices rebounded, after geopolitical tensions were pushed back onto investors’ radar by news of Iran test-firing missiles and of an armed attack on the U.S. consulate in Turkey.

Iran’s state media reported Iran had test-fired nine long- and medium-range missiles, including one which it has previously said could reach Israel and U.S. bases in the region.

Tensions in the region were further stoked after three policemen and three gunmen were killed in an attack on the United States consulate in Istanbul.

Also in Turkey, three German tourists were kidnapped by Kurdish guerrillas, broadcaster CNN Turk reported a local governor as saying.

A pick-up in geopolitical concerns also gave safe-haven currencies like the Swiss franc CHF= a bid tone, as well as boosting the price of oil CLc1 and gold XAU=.

“The broader geopolitical risk — with the uncertainties revolving around the newsflow from Iran and ... Turkey — is playing into market sentiment,” said Jeremy Stretch, strategist at Rabobank.

“And if we are seeing the oil price reversing the pull back from yesterday one would suspect, in view of the current correlation between oil and the dollar, that euro/dollar would probably rally as a consequence.”

However analysts said geopolitics could soon take a back seat again once macroeconomic newsflow picks up after a lack of first tier economic releases from U.S. or euro zone on Wednesday.

The dollar index, which tracks the greenback against a basket of six major currencies, fell 0.25 percent on the day to 72.775 .DXY by 1032 GMT.

Against the Swiss franc, the dollar fell 0.2 percent to 1.0321 francs and versus the Japanese unit, it was little changed at 107.43 yen JPY=.

Another mild dollar negative was the fact that Group of Eight leaders did not speak out against the U.S. currency’s weakness in the communique culminating their three-day meeting.

The euro gained 0.2 percent to $1.5703 EUR= and edged up 0.1 percent to 168.59 yen EURJPY=R.

Despite broad U.S. dollar weakness, the Aussie dollar AUD= lost ground after a drop in consumer confidence and following a report showing demand for home mortgages suffered the biggest monthly fall in eight years, the latest signs the economy is losing steam. [ID:nSYD27641]

The Aussie fell to a near three-week low of $0.9474.

OIL EYED

Oil resumed its climb in the wake of the missile test with U.S. crude CLc1 gaining nearly $2 to above $137 a barrel. Oil had fallen more than $5 on Tuesday after forecasters said an Atlantic hurricane would steer clear of offshore oil platforms but it remained not far off its all-time high of $145.85.

“In our view energy prices are unlikely to sustain anything like the pace of recent falls and so the USD index can re-target its recent 72.00 low,” ING said in a note to clients.

The dollar had been relatively steady in early Asian trade after Federal Reserve Chairman Ben Bernanke assured investors the central bank would keep assisting financial markets as long as they remained frail.

Bernanke said the Fed might keep open emergency lending facilities for big Wall Street firms — launched after the collapse of Bear Stearns — longer than planned. [ID:nN08304308]

Those remarks helped relieve fears the top U.S. mortgage lenders, Fannie Mae FNM.N and Freddie Mac FRE.N, could have to raise $75 billion of capital due to upcoming accounting rule changes.

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