Greenback Nears Two-Month High
The U.S. dollar strengthened on Thursday, trading just below its strongest level since early April as doubts increased over the chances of a deal to reopen the Strait of Hormuz.
The move came as investors also turned their attention to the possibility of U.S. interest rate hikes, with recent Federal Reserve commentary taking a more hawkish tone.
Iran Tensions Support Safe-Haven Demand
Iran’s Revolutionary Guard targeted a U.S. airbase on Thursday, according to Iranian media, just hours after President Donald Trump rejected reports that Washington was close to a compromise with Tehran.
The renewed escalation supported safe-haven demand for the dollar, especially as uncertainty persisted around shipping through the Strait of Hormuz and the broader path of the conflict.
Dollar Rebounds After April Weakness
The dollar surged in March after Iran’s effective closure of the Strait of Hormuz pushed oil prices sharply higher, hurting major energy importers such as Japan and the euro zone.
It later fell after Trump announced a two-week ceasefire on April 7, but recovered in May as investors became less confident that a durable peace agreement would be reached.
Fed Outlook Comes Back Into Focus
Markets are also watching the Federal Reserve closely ahead of key U.S. economic data.
Commerzbank rate strategist Michael Pfister said increasingly hawkish comments from Federal Open Market Committee members have helped shift market expectations toward possible rate hikes. He said upcoming data will be important in determining whether those expectations are justified.
Waller Opens Door To A Hike
Federal Reserve Governor Christopher Waller said last Friday that the central bank should remove its easing bias from its policy statement.
That would effectively open the door to a possible rate hike, marking a significant shift in tone after markets had previously expected the Fed to move toward rate cuts.
Euro Slips Against The Dollar
The euro fell 0.16% to 1.1607 dollars as the dollar held firm.
ING analysts said the hawkish Fed narrative is likely to dominate in the coming weeks and warned that the euro may struggle to stay above the 1.1650 to 1.1660 range.
Core PCE Becomes The Next Test
Investors are now waiting for the Fed’s preferred inflation measure, the core PCE deflator, due later in the session.
A stronger inflation reading could reinforce expectations that the Fed may need to keep policy tighter for longer or even consider another hike.
Oil Prices Rise Again
Oil prices climbed more than 2% on Thursday after falling more than 5% the previous day.
The rebound followed Iran’s claim that it had targeted a U.S. airbase in response to an American attack in the port city of Bandar Abbas. The renewed rise in oil prices added to inflation concerns and supported the dollar’s safe-haven appeal.
Dollar Index Holds Near April High
The dollar index, which measures the greenback against a basket of major currencies, rose 0.18% to 99.39.
Earlier in Asian trading, it touched 99.546, its highest level since April 7, reflecting renewed demand for the U.S. currency as geopolitical and monetary policy risks converged.
Yen Holds Near Intervention Levels
The dollar was little changed against the yen at 159.43, keeping the Japanese currency close to levels that could trigger official intervention.
Analysts said a sharp yen rebound looks unlikely, with a June Bank of Japan rate hike already largely priced in. However, the threat of intervention may limit further yen losses beyond 160 per dollar.
Aussie And Kiwi Retreat
The Australian dollar fell 0.35% to 0.7115 dollars, touching a one-week low as risk-sensitive currencies came under pressure.
The New Zealand dollar slipped 0.2% to 0.5888 after rising sharply in the previous session. The kiwi had been the top-performing G10 currency on Wednesday after the Reserve Bank of New Zealand signaled that earlier and more aggressive rate hikes may be needed to counter the global energy shock.
