NEW YORK/LONDON, June 18 (Reuters) - The U.S. dollar traded mostly lower against the yen and edged higher against the Swiss franc on Wednesday as fighting between Israel and Iran spurred investors to scoop up safe havens, while a pending Federal Reserve rates decision restrained volatility.
Israel has bombarded arch-enemy Iran over the past six days to halt its nuclear activity and has asserted the need for a change of government in the Islamic Republic.
The U.S. military is also bolstering its presence in the region, Reuters reported, stirring speculation about U.S. intervention that investors fear could widen the conflict in an area with critical energy resources, supply chains and infrastructure.
Iranian Supreme Leader Ayatollah Ali Khamenei said in a statement read by a state television presenter on Wednesday that his country would not accept U.S. President Donald Trump's call for an unconditional surrender.
The dollar has resumed its role as a safe haven, having gained around 1% against both the Japanese yen and Swiss franc since last Thursday. On Wednesday, the U.S. currency took a breather, edging fractionally lower against the yen and the franc and more noticeably so against the euro and the pound.
"A lot of the (dollar's) safe haven appeal has faded, and that's why the move has been relatively limited so far," said Matt Weller, global head of market research at StoneX.
"I think traders are just coming around to that realization and looking ahead to what I expect to be a very dovish hold from the Federal Reserve this afternoon."
Against a basket of six other major currencies, the dollar is still down around 8% so far this year, as confidence in the U.S. economy and the reliability of Trump's administration as a trading and diplomatic partner has faded.
With the Fed's decision on interest rates just hours away and U.S. markets closed on Thursday for the Juneteenth federal holiday, activity in currencies was muted.
Against the yen , the dollar fell 0.27% to 144.88 and was steady against the franc at 0.8169 francs.
NO CHANGE FROM THE FED
Traders expect the U.S. central bank to leave borrowing costs unchanged and will parse what Chair Jerome Powell says about the outlook for growth and inflation.
Uncertainty was already running high and recent data have begun to show the impact of Trump's erratic approach to trade and tariffs. The escalation of conflict in the Middle East, and the surge in crude oil prices to about $75 a barrel, have further complicated the picture for policymakers.
"I think everyone had expected they would shift dovish, but just given the CPI report and some of the underlying employment data recently, with the Iran situation kicking off and oil prices higher, we'll see how the Fed threads the needle," said Brad Bechtel, global head of FX, at Jefferies.
"But I think most would expect they're going to be keeping their options open, remaining a little more cautious, which probably doesn't impact the dollar too much."
The dollar kept to weaker ranges even after data showed the number of Americans filing new applications for unemployment benefits fell, but stayed elevated. Meanwhile, the Swedish central bank cut rates as anticipated, leaving the crown a touch weaker against the euro , which rose 0.57% to 11.0300 crowns.
On Thursday, the Swiss National Bank, the Bank of England and the Norges Bank will deliver their respective rate decisions.
The pound rose 0.25% to $1.3461, having received an early boost from data showing inflation cooled no more than expected to an annual rate of 3.4% in May, ahead of the BoE decision. The euro was also up 0.26% at $1.151.
In the background, an area of frustration for investors was a Group of Seven meeting in Canada that yielded little on the tariff front ahead of Trump's early-July deadline for additional import levies.
Reporting by Laura Matthews in New York; additional reporting by Johann M Cherian in Bengaluru; editing by Christopher Cushing, Jamie Freed, Joe Bavier and Mark Heinrich
