Dollar Climbs on Iran Strikes as Yen Approaches Intervention Level Again

Dollar held firm near one-week highs Thursday after Reuters reported fresh US strikes on Iranian military sites. Peace talk hopes evaporated. Oil bounced. Safe-haven bid picked up the greenback.

Trump said Wednesday he wasn’t satisfied with any Iran deal. Dismissed Iranian claims that Iran and Oman would jointly manage Strait of Hormuz shipping. That killed the narrative about a quick resolution. Markets now pricing in higher oil prices staying sticky, which supports dollar strength.

Alex Saunders from Citi said geopolitics and inflation risks remain the story. Fed’s shifting focus toward battling price pressures amid elevated energy. That supports the dollar narrative. When oil spikes, central banks get hawkish. When central banks get hawkish, their currencies tend to strengthen.

Euro dropped a shade to $1.1620. Pound fell 0.1% to $1.34176. Aussie weakened 0.2% to $0.71305. Kiwi basically flatlined at $0.58965. Dollar index sat steady at 99.288, near its highest since May 22.

Here’s the real story though. Yen weakened to 159.60 per dollar Thursday, lowest since April 30. That’s dangerously close to the 160 level that triggered Japanese intervention last month. Authorities stepped in at 160, bought some yen, pushed it back down. But for how long?

Tony Sycamore from IG raised the brutal question: Was that month of relief worth the intervention cost? And more importantly, will Japanese authorities actually fight again if the yen hits 160 again? One intervention doesn’t establish a pattern. Markets know that. They keep testing.

BOJ’s got a policy meeting June 15-16. Markets pricing 70% odds they hike rates a quarter point. Higher rates usually strengthen the yen. But geopolitical premium pushing dollar higher could overwhelm that. The math gets ugly for yen either way.

Fed’s preferred inflation gauge, core PCE deflator, gets released today. That’ll shape the broader interest rate outlook. Hot number keeps the dollar bid alive. Soft number might give the yen room to breathe.

Oil rebounded on the Iran strike news. Energy prices staying elevated support dollar strength because commodity exporters weaken their currencies when trying to support dollar-denominated prices. It’s a feedback loop. Dollar strength, oil prices firm, more dollar strength.