Dollar Firms to One-Week High, Yen Nears Intervention Zone

Dollar Hits One-Week High as Gulf Tensions Flare, Yen Nears Intervention Zone

The dollar strengthened to a one-week high on Thursday after Middle East tensions escalated following fresh U.S. strikes on Iran, while the yen softened toward the level that triggered central bank intervention last month.

Geopolitical Risks and Oil Prices

Iran's Revolutionary Guards said they targeted a U.S. airbase after an early morning U.S. attack near Bandar Abbas airport, while Kuwait's army intercepted hostile missile and drone threats. The developments dimmed hopes for a swift resolution to the war, boosting oil prices and supporting the safe-haven dollar.

Fed and Inflation Outlook

Investors increasingly expect the dollar to break higher as the Federal Reserve shifts focus to battling inflation amid elevated energy prices. Alex Saunders, Citi's head of global quant macro strategy, noted that geopolitical risks and subsequent inflation concerns are key concerns for reducing USD underweight positions.

Yen and BOJ Intervention

The yen weakened to 159.610 per dollar, the lowest since April 30 and within sight of the 160 level that triggered intervention by Japanese authorities last month. IG market analyst Tony Sycamore questioned whether authorities would have the resolve to intervene again if the 160 level is breached. Markets are pricing a roughly 70% chance of a quarter-point rate hike at the BOJ's June 15-16 meeting.