Overview

At 16:45 ET (20:45 GMT) the U.S. dollar index, which measures the greenback against six major currencies, was up 0.3% to 101.24, putting the dollar on track for its strongest day in three weeks. The rally was fueled by heightened safe‑haven demand after the cease‑fire between Washington and Tehran collapsed and President Donald Trump reinstated an American naval blockade of the Strait of Hormuz.

Geopolitical Developments

The United States and Iran exchanged fresh strikes over the weekend, marking the most serious flare‑up since the interim peace deal signed in mid‑June. Iran’s state media announced the strait would remain closed until “stability” is restored and U.S. interference ends. U.S. Central Command reported completing four rounds of strikes against Iranian targets in retaliation for attacks on commercial vessels, while asserting the narrow chokepoint remains open.

Trump’s Blockade Announcement

President Trump posted on Truth Social that the Hormuz Strait is “OPEN, and will remain OPEN, with or without Iran,” and declared the United States the “GUARDIAN OF THE HORMUZ STRAIT.” He said the U.S. will be reimbursed at a rate of 20% on all cargo shipped for costs incurred in providing safety and security, with the process to begin immediately.

Oil and Treasury Market Reaction

Crude oil prices jumped more than 9% (CL +9.13%) as the renewed geopolitical risk premium revived supply concerns. The surge in oil pushed U.S. Treasury yields higher, with the 10‑year note up 0.66% (TNX +0.66%).

Fed Rate‑Hike Expectations

Traders raised the probability of a quarter‑point Federal Reserve hike at the July‑end meeting to about 43% on the CME FedWatch tool, up from roughly 34% the previous day. The market is now focused on upcoming U.S. consumer and producer inflation releases. Analysts expect June inflation to have eased relative to May, but the resurgence of oil‑driven price pressures could alter that view.

Federal Reserve Commentary

In its semi‑annual monetary policy report to Congress, the Fed reiterated its commitment to price stability and signaled readiness to “act forcefully” to curb longer‑term inflation expectations. New Fed Chair Kevin Warsh is scheduled to testify before both the Senate Banking Committee and the House Financial Services Committee next week.

Inflation Outlook

Senior Interactive Brokers economist José Torres noted that Wall Street expects the annualised Consumer Price Index and Producer Price Index to have peaked in May at 4.2% and 6.5% respectively, with July headline estimates projected at 3.5%‑3.6%. He added that a sustained drop in oil prices below $70 could generate a two‑handle move in Treasury yields by the end of 2026, but the Fed’s disciplined stance suggests tighter financial conditions may persist longer than preferred.

Currency Movements

The dollar’s strength weighed on other major currencies. The euro slipped 0.3% to $1.1379, the British pound fell 0.5% to $1.3344, and the Japanese yen weakened, with USD/JPY up 0.5% to 162.46, remaining in potential intervention territory.

Upcoming Central Bank Signals

European investors await a speech by ECB Executive Board member Isabel Schnabel, a noted hawk, for clues on whether Gulf energy shocks could prompt the ECB to adjust its policy trajectory.

Japanese Policy Context

Japan’s Finance Minister Satsuki Katayama has signaled a desire to encourage the Government Pension Investment Fund and other large public pension funds to redirect overseas holdings back to domestic assets, adding to scrutiny of the yen’s recent weakness.

Prior Market Context

Earlier in the month, after the U.S.‑Iran peace deal, oil prices had retreated to pre‑war levels and the Strait of Hormuz saw a modest increase in ship transits. The latest round of fighting has reduced crossings and reignited supply concerns, contributing to the current market dynamics.