The dollar index (DXY) rose by 0.18% on Monday as escalating hostilities between the U.S. and Iran drove crude oil prices higher, raising inflation expectations that could lead the Federal Reserve to tighten monetary policy. Amid the conflict, Houthi rebels announced a maritime blockade on Saudi Arabia, contributing to safe-haven demand for the dollar. Additionally, June leading indicators declined 0.2% month-over-month, worse than the expected 0.1% drop.
On the same day, the U.S. carried out its ninth consecutive day of airstrikes on Iran, targeting military installations and communication networks. Iran retaliated with drone and missile attacks on U.S. bases in multiple countries, including Kuwait and Iraq. The situation prompted the U.S. to deploy more F-35 and F-16 fighter jets to the region, indicating a potential escalation in military operations.
In currency trading, EUR/USD fell by 0.22% while USD/JPY increased by 0.06%. The euro was affected by lower than expected German producer prices, which rose 1.8% year-over-year, falling short of the European Central Bank’s 2% target. The yen dropped to a one-week low against the dollar, pressured by rising crude oil prices and a lack of trading due to Japan’s Marine Day holiday. Markets are currently assessing a minimal likelihood of interest rate hikes from the Fed (17% for July) and the Bank of Japan (1% for July).
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