A series of market-moving developments on Friday saw the US Dollar (USD) strengthen against major currencies, driven by renewed expectations of a Federal Reserve (Fed) interest rate hike and escalating geopolitical risks in the Strait of Hormuz. According to the CME FedWatch tool, markets have priced in a 63.4% probability of a Fed rate hike at the September 15–16 meeting, with some sources citing over an 80% chance of at least one hike by year-end, supported by the headline Personal Consumption Expenditures (PCE) Price Index rising to 4.1% year-over-year in May, up from 3.3% in April, and the core PCE index climbing to 3.4% from 3.3% [3][5]. Fed officials, including Chicago Fed President Austan Goolsbee and New York Fed President John Williams, emphasized that inflation remains too high, reinforcing the hawkish outlook [5].
Geopolitical tensions further buoyed the USD, as reports emerged that Iran’s Islamic Revolutionary Guard Corps (IRGC) attacked a Singapore-flagged cargo ship in the Strait of Hormuz. This incident reignited concerns about the sustainability of the interim US-Iran peace deal, increasing demand for safe-haven assets like the USD and weighing on risk-sensitive instruments [4][5].
The stronger USD exerted downward pressure on several currency pairs and commodities. Gold (XAU/USD) fell back below the $4,000 mark, trading down around 0.40% for the day and on track for a fourth consecutive weekly loss. Technical indicators for gold remain bearish, with the Relative Strength Index (RSI) near 36 and the price failing to reclaim the 100-period Simple Moving Average (SMA) [5].
In the forex market, EUR/JPY slipped below 184.00, maintaining a bearish near-term bias as it trades around 183.90, with the 14-day RSI easing toward 38 and the pair remaining within a symmetrical triangle, signaling market indecision and potential for a breakout. Key support is at 183.40, with further downside exposing the four-month low of 181.87 [1]. AUD/JPY also extended its bearish spell, trading around 111.25, as the Japanese Yen (JPY) strengthened on the back of rising Tokyo CPI inflation and speculation of further Bank of Japan (BOJ) rate hikes. The pair remains below the 100-day moving average, with the RSI at 34.18, just above oversold territory [2].
EUR/USD held above the mid-1.1300s but struggled to build on previous gains, pressured by safe-haven flows into the USD and a bearish technical setup. The pair's inability to break above the 100-period SMA and a modestly positive MACD suggest any recovery may be short-lived, with immediate resistance at 1.1440 and vulnerability to test fresh lows [4].
The Indonesian Rupiah (USD/IDR) also remained under pressure, trading around 18,000, as the USD found support from Fed hike expectations and higher US inflation data. However, strong foreign capital inflows into Indonesian securities helped cushion deeper losses [3].
CONCLUSION
The combination of hawkish Fed expectations and renewed geopolitical risks in the Strait of Hormuz has strengthened the US Dollar, pressuring gold and major currency pairs. Technical and fundamental signals suggest continued downside risk for risk assets and non-USD currencies, with markets closely watching upcoming inflation data and central bank commentary for further direction.