The U.S. dollar held its ground Tuesday as financial markets prepared for a closely watched round of American inflation reports, while escalating tensions between the United States and Iran sent oil prices surging and kept the Japanese yen under pressure.
The dollar index, which tracks the greenback against a group of major currencies including the yen and the euro, was unchanged at 101.27.
All eyes are on inflation this week, with the release of U.S. June Consumer Price Index data on Tuesday, followed by June Producer Price Index figures the next day, and Federal Reserve Chair Kevin Warsh’s first semiannual testimony before Congress also on the schedule.
Worries about a deepening confrontation between the U.S. and Iran resurfaced after President Donald Trump announced Monday that Washington was reimposing a naval blockade on Tehran and would keep the Strait of Hormuz open for a fee, following a fresh round of missile and drone exchanges.
Over the weekend, U.S. and Iranian forces traded heavy missile and drone strikes. Iran struck U.S. facilities in states across the Gulf on Sunday and declared it had once again shut down the strategically critical Strait of Hormuz shipping lane.
Oil prices surged more than 9% to a one-month high on Monday. Both U.S. West Texas Intermediate and Brent crude futures climbed more than 2% to their highest levels since mid-June during early Tuesday trading.
The euro held steady against the dollar at $1.1383, while the British pound traded at $1.3347.
Federal Reserve Governor Christopher Waller stated that interest rates may need to go higher “in the near term” if incoming data shows inflation staying well above the Fed’s 2% goal.
Ray Attrill, head of FX strategy at National Australia Bank, noted in a podcast that a core CPI reading of 0.3% or more would likely suggest — depending on the PPI figures due later in the week — that the Fed’s preferred core PCE deflator is also running at 0.3% or above.
“That may well be a trigger for a Fed rate hike as early as the July meeting,” Attrill said.
Economists’ median forecast for June core CPI was 0.2% growth on a month-over-month basis. Fed funds futures are currently pricing in roughly 30 basis points of rate increases by the U.S. central bank this year, according to LSEG data.
The Japanese yen was nearly flat against the dollar at 162.40, a level that has traders watching closely for possible intervention by Japanese authorities as the currency lingers near 40-year lows.
“Japanese authorities appear to have softened their tolerance a touch, though they remain vigilant and have indicated that further forceful intervention is on the cards should we see another dramatic move from here,” said Matthew Ryan, head of market strategy at Ebury, a British payment firm.
The yen slipped Monday after Reuters reported that Tokyo had no immediate plans to adjust the asset allocations of its state pension funds, cooling expectations for near-term support for domestic assets.
The yen and Japanese bonds had rallied Friday after Finance Minister Satsuki Katayama said the government would look for ways to encourage pension funds — including the Government Pension Investment Fund — to increase their investments in Japanese financial assets.
The Australian dollar last traded at $0.6915 against the greenback. New Zealand’s kiwi rose 0.24% against the dollar to $0.5762.
In cryptocurrency markets, bitcoin edged up 0.23% to $62,293.66, while ether gained 0.56% to reach $1,775.54.
