Traders await tomorrow’s US inflation report amid heightened Middle East tensions and shifting Fed rate hike expectations.
The USD/JPY pair remains rangebound above 160.50 as markets brace for the US CPI report, a key driver for Federal Reserve policy expectations. Renewed US-Iran tensions have bolstered the USD, lifting July rate hike odds to 33% and 2026 tightening expectations to 39 bps.
Prior to the geopolitical escalation, the dollar had strengthened broadly, with oil prices rising due to halted traffic in the Strait of Hormuz. Japanese officials’ warnings of potential stealth interventions have slowed the yen’s depreciation, though focus remains on US data.
A softer CPI may not ease hawkish repricing due to Middle East risks, while a hotter print could trigger broad risk-off sentiment and further USD strength.