Dollar holds 2-month high as Gulf hostilities drive yen to 160

Fresh Iranian strikes on Kuwait and US retaliation near the Strait of Hormuz pushed the dollar to a two-month high and the yen to the brink of 160 per dollar, reviving inflation fears across global markets.

The dollar held near a two-month high and the yen hovered at the 160-per-dollar intervention threshold Thursday as fresh Gulf hostilities pushed oil above $97 a barrel and deepened the safe-asset bid. The ICE US Dollar Index stood at 99.21, extending a third straight daily gain, while Brent crude futures rose about 1% to nearly $97 a barrel.

"As the conflict intensifies, rising energy prices are expected to lift inflation expectations, which could lead to higher interest rates and further strengthen the dollar," said David Meger, director of metals trading at High Ridge Futures.

The yen touched 159.95 per dollar, keeping traders on alert for intervention by the Bank of Japan after Tokyo spent a record ¥9.8 trillion ($61 billion) supporting the currency in April. Most Asian currencies traded lower, with the Indonesian rupiah touching a record low. The Indian rupee opened at 95.45 against the dollar, down 0.2% from its previous close, pressured by foreign portfolio outflows of more than $800 million from Indian equities on Tuesday.

The Strait of Hormuz handles about 21% of global oil trade, and any sustained disruption risks feeding through to consumer prices at a time when the Federal Reserve is already wrestling with sticky inflation. Fed Bank of New York President John Williams said Wednesday that monetary policy is in the "right place," while Cleveland Fed President Beth Hammack signaled the central bank may need to raise rates if price pressures persist. Markets now await Friday's US nonfarm payrolls report for May, with economists expecting 185,000 jobs added.

Oil at $97 Fans Inflation Fears

Brent crude's climb toward $97 a barrel marks the highest level since the conflict in Iran entered its third month, compounding supply concerns after OPEC+ maintained its production cuts. The rally in energy prices threatens to complicate the inflation outlook for central banks globally: the US personal consumption expenditures price index, the Fed's preferred gauge, has already run above the 2% target for 36 consecutive months.

Gold, typically a hedge against inflation, fell 1% to $4,440.99 an ounce as the stronger dollar and expectations of higher interest rates diminished the non-yielding metal's appeal. Spot silver dropped 2.2% to $73.40 an ounce, while platinum lost 3.5% to $1,868.58.

The last time the US and Iran engaged in direct military exchanges at this scale was in January 2020, when a US drone strike killed General Qassem Soleimani. In the following month, Brent crude spiked 15% to $68 a barrel before retreating as diplomatic channels reopened.

Yen Intervention Risk Intensifies

The yen's slide to 159.95 per dollar brings it within striking distance of the 160 level that triggered Japan's largest-ever intervention in April, when the Ministry of Finance sold dollars to support the currency. Finance Minister Katsunobu Kato has maintained a stance of "urgent warning" on excessive moves, though he has not confirmed any specific intervention threshold.

The dollar's strength has been broad-based, with the euro falling to $1.0820 and the pound declining to $1.2650 as the geopolitical risk premium lifted the greenback across major pairs. The Bloomberg Dollar Spot Index rose 0.3% in Asian trading, reflecting gains against all 10 developed-market currencies.

Emerging-market currencies bore the brunt of the risk-off shift. The Indonesian rupiah fell to a record low, while the South Korean won and the Thai baht each declined more than 0.5%. The Reserve Bank of India is expected to intervene in the foreign exchange market to curb excessive volatility, traders said, with the central bank's monetary policy decision due Friday.

This article is for informational purposes only and does not constitute investment advice.