The dollar index (DXY) rose by +0.09% today, driven by a slump in equity markets and increasing liquidity demand for the currency. This rise is also supported by higher crude oil prices, which have elevated inflation expectations, possibly influencing the Federal Reserve to maintain tight monetary policy. Additionally, heightened tensions between the U.S. and Iran, following U.S. strikes on over 80 targets in Iran, have increased demand for the dollar as a safe haven.
The swaps markets are currently pricing a 34% chance of a +25 basis point rate hike by the Fed at its next meeting on July 28-29. The euro is under pressure, down -0.03%, primarily due to the stronger dollar and a 6% surge in crude oil prices, which bear negatively on the Eurozone’s economy. ECB Governing Council member Joachim Nagel hinted at the potential for another interest rate increase due to recent geopolitical developments.
Meanwhile, the yen fell by +0.28%, also affected by the stronger dollar and rising crude oil prices. The Nikkei Stock Index plunged -2%, pushing demand for the yen as a safe haven, although currency intervention risks remain high with the yen trading above 160 per dollar. There is a +2% chance of a +25 basis point rate hike by the Bank of Japan at its next meeting on July 31.
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