The U.S. dollar held its ground against most major world currencies on Thursday, as fresh tensions in the Gulf region pushed investors toward safer assets and rising oil prices intensified expectations that the Federal Reserve could raise interest rates.
Against the Japanese yen, the dollar traded at 162.41, hovering near its strongest point since July 1. The euro and British pound saw little movement, trading at $1.1426 and $1.3392, respectively. The U.S. dollar index, which tracks the dollar against six other major currencies, was nearly unchanged at 100.96.
The New Zealand dollar continued to climb following a rate hike by its central bank the day before, rising 0.5% to $0.5725. The Australian dollar edged up 0.1% to $0.6936.
Kyle Rodda, a senior financial market analyst at Capital.com, described the situation bluntly: “A flare-up of Middle East tensions has rattled global markets again and jammed a war risk premium back into asset prices.”
Rodda also noted that the ripple effects of rising oil prices are significant when it comes to inflation and interest rates globally, warning that “a jump in oil prices could bring forward the timing of a Fed hike.”
The tension escalated after the U.S. military launched new strikes on Iran, coming just hours after President Donald Trump declared that an interim agreement to end the war was “over.” That announcement sent oil prices sharply higher.
The development served as what analysts called a “wake-up call” for investors regarding how energy prices can fuel inflation. U.S. Treasury yields on 10-year and 30-year bonds climbed to seven-week highs as markets began pricing in a greater chance of rate increases. According to CME FedWatch data, markets now place the implied probability of a rate hike this year at roughly 87%.
Minutes from the June Federal Open Market Committee meeting — the first held under Chair Kevin Warsh — also reflected a hawkish divide among policymakers, with growing concern over persistently high inflation.
On the oil front, Brent crude futures rose to $79.28 per barrel on Thursday, following a more than 5% gain on Wednesday that brought prices to $78.02 — the highest level in over two weeks.
The Japanese yen continued to face significant pressure. After briefly touching 162.71 overnight — near a 40-year low — the currency has given back most of the gains it made in an unexpected surge last week. Many market observers believe that rebound was the result of quiet intervention by Japanese authorities, though Tony Sycamore, an analyst at IG, noted that confirmation is unlikely to come until the end of the month when the Ministry of Finance releases its official intervention data.
Sycamore added that “whether it becomes a more meaningful medium-term high will ultimately depend on incoming U.S. data and, to some degree, developments in the Japanese government bond market.”
