Persistent US-Iran tensions and delayed Strait of Hormuz reopening keep oil prices elevated, supporting the USD despite Bank of Japan rate hike signals.
The USD/JPY pair remains bid as geopolitical risks in the Middle East counterbalance hawkish comments from Bank of Japan Governor Ueda and expectations of an imminent rate hike. Renewed US-Iran hostilities, including recent attacks on US bases, have extended the negotiating stalemate, delaying the reopening of the Strait of Hormuz and keeping oil prices elevated.
The dollar has traded in a range for months, weakening on positive US-Iran headlines and strengthening on negative developments. With the Strait closure expected to persist through September, oil prices are likely to stay high, potentially forcing the Fed to reconsider its policy stance. The June FOMC meeting may see a more hawkish shift if conditions remain unchanged.
Markets are pricing in a reduced likelihood of Fed rate cuts due to sustained oil prices, which could further support the USD. However, a sudden resolution to the Strait closure could reverse this trend, weighing on the dollar as oil prices fall and rate cut bets increase.