The US Dollar strengthened significantly on Monday, with the USD/JPY pair trading near 162.40 as the Japanese Yen weakened amid escalating geopolitical tensions in the Strait of Hormuz and renewed policy concerns [1][2]. The US Dollar Index (DXY) climbed to around 101.25, recovering from an intraday low of 100.80, following hawkish remarks from Federal Reserve Governor Christopher Waller, who suggested that a July rate hike remains possible if inflation data does not show improvement [2]. Waller stated, 'There is still a credible case for inflation to begin to fall back to our 2% goal with policy at its current setting. But I am concerned about the equally plausible case that data in the coming weeks will show that inflation will remain at its elevated level or even trend higher, requiring tighter monetary policy in the near term' [2].
Market expectations for a July Fed rate hike rose sharply, with the CME FedWatch Tool indicating a 41% probability, up from 25% a week ago, and a 75% chance for a September hike [2]. The upcoming US Consumer Price Index (CPI) report is in focus, with headline inflation expected to ease to 3.8% year-over-year from 4.2%, and the monthly reading forecast to decline 0.1% after a 0.5% increase. Core CPI is projected to remain unchanged at 2.9% YoY and 0.2% MoM [1][2].
Geopolitical risks intensified after US President Donald Trump declared the US the 'Guardian of the Hormuz Strait,' announced the reinstatement of a blockade targeting Iranian ships and customers, and proposed a 20% charge on cargo transported through the waterway to cover security costs [1][2]. Trump asserted that the Strait 'is OPEN, and will remain OPEN, with or without Iran,' while Iran rejected US involvement and warned that any unauthorized US attempt to transit the waterway would be strongly confronted [1][2]. Tehran also claimed it has once again closed the Strait, highlighting the ongoing dispute [2].
Oil prices surged in response to the tensions, with West Texas Intermediate (WTI) trading around $77.72, up more than 8% on the day and reaching its highest level since June 22 [2]. The risk of supply disruptions through the Strait of Hormuz, which carries about 20% of global oil supplies, has heightened concerns about energy-driven inflation [2].
Short-term technical analysis shows USD/JPY trading at 162.46, maintaining a bullish bias above key moving averages, with the Relative Strength Index (RSI) at about 58, indicating continued upward momentum [1]. The US Dollar was the strongest against the Swiss Franc, gaining 0.66%, and rose 0.47% against the Japanese Yen [2]. Traders are also awaiting Fed Chair Kevin Warsh’s congressional testimony for further policy signals [2].
CONCLUSION
The US Dollar rallied on Monday, buoyed by rising Fed rate hike expectations and heightened geopolitical tensions in the Strait of Hormuz, which pressured the Japanese Yen and lifted oil prices. With inflation data and further Fed commentary on the horizon, markets remain focused on the dual risks of persistent inflation and Middle East instability. The prevailing sentiment favors continued US Dollar strength in the near term.