Key facts
- The U.S. dollar held firm as renewed Middle East tensions revived safe-haven bids.
- Surging oil prices boosted expectations for Federal Reserve rate hikes.
- The Japanese yen hovered near a 40-year low.
- The New Zealand dollar extended gains following a rate hike and hawkish stance from its central bank.
- U.S. 10-year and 30-year Treasury yields reached seven-week highs.
The U.S. dollar held firm against most major currencies as renewed Middle East tensions revived safe-haven bids, while surging oil prices boosted bets on further Federal Reserve rate hikes. The Japanese yen remained under pressure, hovering near a 40-year low against the dollar.
The U.S. military launched fresh strikes on Iran, hours after President Donald Trump declared an interim agreement to end the war was 'over,' sending oil prices sharply higher. This development gave investors a 'wake-up call' regarding energy prices' impact on inflation, leading U.S. 10-year and 30-year Treasury yields to seven-week highs as markets priced in a higher risk of rate hikes. The June FOMC minutes also revealed a hawkish split among policymakers due to concerns about high inflation, increasing the implied probability of a Fed hike this year to approximately 87%.
Brent crude futures were up at $79.28 a barrel, following a more than 5% rise to $78.02 on Wednesday. The dollar fetched 162.41 yen, near its strongest level since July 1. The euro and British pound traded largely flat. The New Zealand dollar extended its gains by 0.5% to $0.5725 after the previous day's rate hike and the central bank's hawkish stance, while the Australian dollar added 0.1% to $0.6936.
The U.S. dollar index, measuring the currency against six major peers, was little changed at 100.96. Analysts noted that the flare-up in Middle East tensions has rattled global markets, reintroducing a 'war risk premium' into asset prices. The most significant second-order effect of the oil price jump is its implication for inflation and global interest rates, potentially accelerating the timing of a Fed hike.