The Japanese yen was pinned near its best level since February on Wednesday, leaving the dollar on the ‌defensive as traders grappled with oil prices heading toward $100 a barrel amid an expanding war in the Middle East.

Iranian-backed Houthis in Yemen attacked several Saudi cities, drawing a U.S. partner further into a battle that has dragged on for more than six months, as U.S. forces struck multiple Iranian oil tankers and Iran threatened a U.S. station in Jordan.

Brent crude futures rose by more than 1.48% to $99.37 a barrel, weighing on global markets ahead of a U.S. inflation data on Friday that will set the stage for central bank meetings next week in the U.S. and Japan.

The currency market nudged the dollar down a touch in response, though some analysts said that was due to the yen’s swift rally over the past week.

The euro held constant at $1.1631 while the pound was last bought at $1.3546. ​The dollar index, measuring the U.S. currency against a basket of six major rivals, was at 98.15, near its lowest level in nearly two weeks.

OCBC strategists said the current increase keeps Fed policy implications from higher energy prices in focus, especially after last week’s robust U.S. payrolls report reignited expectations of another rate hike. “Higher oil and rates should help limit USD fall for now but we anticipate a more dramatic move will await confirmation from the impending inflation data,” they said in a note.

The yen has been under focus after its 4% surge in September that has altered the math for the popular carry trade in which investors borrow in yen at a low cost and invest in other currencies and assets yielding better interest.

The yen was stronger at 153.65 per dollar, close to the seven-month peak of 152.89 struck on Tuesday. The surge has been broad-based with the Japanese currency strengthening against the euro and sterling as well as favorite carry-trade targets such as the Mexican peso and Turkish lira.

The increase has been fueled by expectations of quicker tightening by the Bank of Japan and the return of offshore cash by Japanese investors and pressure from Washington for a higher yen.

Traders broadly expect the BOJ to hike rates by 25 basis points at its September 17-18 meeting but the rise will rest on if Governor Kazuo Ueda delivers hawkish comments and the wild card will be the Federal Reserve.Aninda Mitra, head of Asia macro and investment strategy at BNY Investments, stated “Much will depend on how the market prices in the Fed’s path of interest rates too.We estimate the Yen’s “fair value” to be in the 140’s and a further move to that area should not be a total surprise following what has clearly been an overshoot to the side of excessive Yen weakness.”

The Australian dollar gained 0.12% to $0.7225, just below a four-month high set in the previous session, in Pacific trade. The New Zealand dollar was up 0.16% at $0.5862.

The Pakistan Stock Exchange (PSX) was uneven on Wednesday as the benchmark KSE-100 Index oscillated between gains and losses on the back of continuing regional tensions involving the United States and Iran.

The benchmark KSE-100 Index started on the plus side and recovered early, hitting an intraday high of 173,174.48 points.

But the gains could not be held as the index ultimately fell into negative territory. It dropped 42.86 points or 0.02% to 172,599.30 points from previous close of 172,642.16 points.

However, the market bounced back again and the KSE-100 Index recovered 154 points from its earlier position to close at 172,796.56 points, proving the unpredictable character of the trading session.

Earlier on Tuesday, the benchmark KSE-100 index extended its downward trend and lost 993.92 points, or 0.57 percent, to settle at 172,642.16 points against 173,636.08 points in the previous trading session.

In the ready market, the trading volume was recorded at 722.624 million shares as opposed to 679.188 million shares in the last session, while the value of shares traded was recorded at Rs 27.942 billion as compared to Rs 23.692 billion in the last session.

Market capitalization fell to Rs 19.295 trillion from Rs 19.434 trillion a day earlier.

Sources said that if the federal capital is made an independent unit, proposals have been created to introduce a new local tax in Islamabad and the revenue collected will be used on basic services and administrative structure within the city.

Early recommendations are for levies to fund hospitals, schools, colleges and other educational institutions, welfare operations and the administrative framework in Islamabad, sources added. The suggestions are likely to be addressed with the International Monetary Fund (IMF) team during the upcoming economic review while the new tax could be adopted in the budget of the next fiscal year.

No definitive estimate of amount to be collected has yet been prepared. Sources claimed the planned tax was aimed at generating fiscal room for Islamabad, considering the infrastructure requirements of the city.

The fifth review under the Extended Fund Facility (EFF) is scheduled to be reviewed in Pakistan’s next round of talks with the IMF. The fifth review is also listed as a program milestone in the IMF program materials.

Sources said that Federal Board of Revenue (FBR) will prepare tax suggestions in the first instance. These will be laid before the subcommittee created to study the question of taxation in connection with the infrastructure necessary to make of Islamabad an independent unit.

After approval by the relevant subcommittee, the recommendations will be referred to a committee chaired by the minister for planning. After approval there, the plans would be sent to Prime Minister Shehbaz Sharif and then completed after approval by the IMF.

The Ministry of Finance has asked all relevant ministries and agencies to collect the necessary data and reports in preparation for the economic review talks with the IMF.

The relevant ministries will brief the IMF delegation on structural benchmarks and targets for economic reform, sources added. Also reforms in the energy sector will continue to be an important element of the talks and targets relating to circular debt in the electricity and gas industry are also expected to be discussed.

Sources said that if the talks between Pakistan and the IMF were successful it would open the way for the delivery of the fifth tranche under the present loan arrangement. Upon successful completion of the evaluation, the total estimated distribution would be $1.2 billion. Under the fifth tranche, Pakistan is scheduled to receive roughly $1 billion, while another $200 million could be granted to mitigate losses caused by climate change.

According to reports, the planned roadmap also include a new mechanism for the utilization of municipal taxes and distribution of resources. The administrative structure is being put in place and financial affairs are being coordinated with the international lender’s recommendations likely to be part of the effort to make the tax system more effective.