Dollar rises on safe haven boost amid U.S.-Iran escalation, bond sell-off

Investing.com -- The U.S. dollar strengthened on Tuesday, supported by safe-haven demand amid spiking oil prices and a sell-off in the bond markets. Meanwhile, the Japanese yen weakened after U.S. Treasury Secretary Scott Bessent pushed Tokyo to raise interest rates, while the euro slipped after inflation data. At 16:13 ET (20:13 GMT), the U.S. dollar index, which tracks the greenback against a basket of six major currencies, added 0.3% to 99.69. Resurgence in military action between the U.S. and Iran The dollar caught a safe-haven bid after U.S. Central Command said it had launched strikes against Islamic Revolutionary Guard Corps targets, while Iranian state media reported that the attacks hit a factory in Qeshm and non-military targets in Hormozgan. The U.S. and Iran had been at an impasse over control of the Strait of Hormuz. Military action resumed on Sunday after CENTCOM announced what it described as limited and precise action against IRGC forces laying mines in the Strait of Hormuz. Iran retaliated by carrying out strikes against U.S. military bases in Jordan, while Jordanian state media reported the interception and destruction of eight missiles. U.S. President Donald Trump said Tuesday that the latest strikes were in response to the minelaying attempt and the attack on the Jordan military base. Oil prices had gained on Monday and sharply extended their advance on Tuesday following the new U.S. strikes. Brent crude futures were last up 5.3% at $95.25 a barrel, while U.S. West Texas Intermediate crude futures topped $90 a barrel for the first time since June 11. Macquarie global FX and rates strategist Thierry Wizman said the U.S. dollar could continue to benefit from higher crude oil prices because the U.S. terms of trade improve, real incomes increase and the trade deficit narrows when crude prices are high. Bonds dumped amid focus on labor market data Away from the Middle East, a sell-off in U.S. Treasury yields and other major bond markets accelerated on Tuesday, driven by rising concerns about inflation and fiscal debt. The benchmark U.S. 10-year yield reached its highest level since November 2023, while the 2-year yield hit its highest since July 2024. Expectations of a Federal Reserve rate hike in September increased following Federal Reserve Chair Kevin Warsh’s hawkish keynote address at the annual Jackson Hole Economic Policy Symposium. The latest U.S. Job Openings and Labor Turnover Summary showed that job openings in July stood at 7.271 million, below expectations of 7.330 million but above June’s downwardly revised 7.182 million. The July data suggested that the U.S. employment market remained relatively resilient, giving the Federal Reserve some room before potentially tightening monetary policy. According to CME FedWatch expectations, the probability of a quarter-point Federal Reserve rate hike in September stood at approximately 68% after the JOLTS data, while the probability of rates remaining unchanged was close to 32%. Markets are now focused on Friday’s U.S. August nonfarm payrolls report for further clues about Federal Reserve policy. Euro slips, yen hits 160 again for a third straight session The euro slipped 0.3% to $1.1587 after Eurostat data showed eurozone headline consumer price inflation accelerated to 3.3% year-on-year in August from 2.9% in July. Core CPI, which excludes volatile energy, food, alcohol and tobacco prices, unexpectedly eased to 2.4% from 2.5%, while services inflation slowed to 3%. The Japanese yen weakened against the dollar, with USD/JPY rising 0.3% to 160.22. The 160 level has previously triggered currency intervention from Tokyo, including coordinated action with Washington. Treasury Secretary Scott Bessent urged Bank of Japan Governor Kazuo Ueda to raise interest rates during a G20 finance leaders meeting in Asheville, North Carolina. His comments increased expectations for tighter Japanese monetary policy. Swap markets raised the probability of a Bank of Japan rate hike in September to nearly 88%. The hawkish expectations pushed Japan’s 10-year government bond yield above 3% for the first time since August 1996. Roushni Nair, Pranav Kashyap, and Jaiveer Shekhawat contributed to this article. This article was generated with the support of AI and reviewed by an editor.