Dollar Strengthens as Hormuz Tensions Heat Up and US PMI Improves
The US dollar strengthened on Thursday (April 23), buoyed by safe-haven demand amid rising tensions in the Middle East, particularly around the Strait of Hormuz. The dollar index (DXY) rose 0.3% to 98.77 at 3:56 p.m. ET, as market participants assessed that the extension of the US-Iran ceasefire was not yet a breakthrough due to the ongoing shipping incident and harsh rhetoric from both sides.
President Donald Trump said he ordered the US Navy to "shoot and kill" vessels laying mines in the waters off Hormuz and to increase minesweeping operations. Meanwhile, Axios reported that Iran was adding mines to the strait. Tensions escalated after the US announced it was detaining an Iranian-linked tanker and Iran released a video showing its forces boarding a cargo ship near the strait. The US Central Command said it had diverted 33 vessels since the blockade began, while Iran had previously attacked three vessels and seized two.
The dollar's strengthening was also driven by macroeconomic factors. Improved US flash PMI data indicated that US business activity rebounded in April after a slowdown in March. At the same time, oil prices, which have returned above US$100 per barrel, have reinforced concerns about energy inflation, further skewing the market's anticipation of a Fed rate cut this year. Comments by Kevin Warsh—Trump's nominee for Fed Chair—who asserted the central bank's independence and did not commit to cutting interest rates, further reinforced the perception that policy would remain tight. A Reuters survey also indicated market expectations that the Fed would wait at least six months before lowering interest rates.
In Europe, the euro was pressured by signs of weakening activity. EUR/USD fell 0.2% to US$1.1687 after S&P Global data showed eurozone private sector output entered contraction territory in April, ending 15 months of expansion. GBP/USD weakened 0.3% to US$1.3467, while USD/JPY rose 0.1% to 159.68 as the yen weakened slightly.
The FX market remains headline-driven. Monitored variables include the intensity of ship and mine incidents in Hormuz, the effectiveness of blockade enforcement, the direction of oil prices relative to inflation expectations, and subsequent US data releases that could alter market assessments of the Fed's interest rate path. (Arl)*
Source: Newsmaker.id
