Dollar Steady, Yen Strengthens Amid Inflation and Hormuz Uncertainty
The US dollar moved within a narrow range on Friday, with a slight weekly gain, as market participants assessed changing inflation dynamics and their impact on the monetary policy outlook, particularly amid a resurgence in oil prices. The US dollar index (DXY) rose 0.1% to 100.96 at 4:35 p.m. ET, marking a modest weekly gain.
The Japanese yen strengthened after reports that Tokyo was considering policy measures to encourage the Government Pension Investment Fund (GPIF) to allocate more assets to the domestic market. With total assets of about 293.6 trillion yen (US$1.81 trillion), this decision could create significant structural demand for the yen, while also depressing the 10-year government bond yield, which is currently at 3.4%.
The US dollar's dynamics this week were influenced by geopolitical tensions between the US and Iran. Recent escalations, including attacks on tankers in the Strait of Hormuz, fueled speculation about inflation and possible monetary policy tightening. The Federal Reserve minutes from June 16-17 showed disagreements among policymakers on interest rates, alongside inflation concerns stemming from the Middle East conflict and demand in the technology sector.
The market now awaits key US inflation indicators, with the June CPI report scheduled for release on Tuesday and the PPI on Wednesday. The May data showed the highest annual price pressures since April 2023, partly due to the surge in oil prices. However, oil prices have returned to near pre-conflict levels, leading analysts to predict a peak in inflation likely in May.
Analysts note that the Fed's policy outlook will be heavily influenced by upcoming inflation data. Meanwhile, mediators from Oman and Pakistan are encouraging both sides, the US and Iran, to maintain dialogue, contain escalation, and prevent a return to full-scale fighting. This creates a cautious market environment with limited fluctuations for the dollar and other safe-haven assets. (gn)
Source: Newsmaker.id
