The core event across all three articles is the renewed escalation of tensions between the US and Iran, which has triggered significant volatility in currency and commodity markets. The US military launched strikes against Iran in retaliation for attacks on commercial ships in the Strait of Hormuz, with Iran responding by targeting US military installations and assets in Bahrain and Kuwait. US President Donald Trump declared on Wednesday that the ceasefire with Iran was now over [1][3].
This geopolitical friction has reinforced expectations that the Federal Reserve may maintain higher interest rates for longer to combat persistent inflation. According to the CME FedWatch tool, swap traders have raised the probability of a rate hike at the next Fed meeting to over 30%, up sharply from less than 20% last week [2]. Traders are also pricing in around a 70% chance that the US central bank will raise borrowing costs in September [3]. The Minutes from the June 16–17 FOMC meeting, released Wednesday, revealed policymakers were divided on the direction of interest rates. Many participants indicated the federal funds rate would likely finish the year within or slightly below the current 3.6% level, while others argued for higher rates by year-end [2][3]. Fed officials noted that some policy firming would likely be warranted to return inflation to 2% [1][3].
In the currency markets, the USD/JPY pair edged lower during the Asian session on Thursday, snapping a four-day winning streak but lacking bearish conviction. Spot prices traded just below mid-162.00s, remaining close to a four-decade high touched last Wednesday [1]. The US-Japan rate gap, with the Fed seen holding its benchmark rate in a target range of 3.50% to 3.75% in July and the Bank of Japan normalizing its policy rate to 1.0%, leaves a gap of around 250 to 275 basis points, keeping the JPY carry trade active [1]. Speculation about Japanese authorities intervening to support the Yen has prompted some unwinding of bearish bets, but the USD downside remains cushioned by rate hike expectations and geopolitical risks [1].
For gold (XAU/USD), the precious metal struggled to attract buyers despite the softer USD, oscillating in a narrow range during the Asian session. The escalation in US-Iran hostilities revived inflation fears and bolstered bets on a Fed rate increase, limiting the downside for the USD and undermining gold's appeal. Technical indicators show gold maintains a bearish near-term bias below the 200-day SMA, with the RSI at 40.26 and MACD turning positive, suggesting any rebound would likely be limited [3].
The Indonesian Rupiah (USD/IDR) extended losses for the second day, trading around 18,140, ahead of May’s Retail Sales data. The upside for USD/IDR could be restrained as the USD struggles following the Fed Minutes, but renewed US-Iran tensions are stoking energy-driven inflation fears, potentially boosting safe-haven demand for the USD [2].
CONCLUSION
Renewed US-Iran tensions and a divided Federal Reserve have injected volatility into global markets, supporting the US Dollar and limiting downside for USD/JPY and gold. Rate hike expectations have increased, with swap traders raising the probability of a Fed hike at the next meeting to over 30%. The ongoing geopolitical saga is expected to continue driving market sentiment and volatility in the near term.