Dollar Rises Amid Houthi Tanker Attacks and Oil Price Surge

Currency exchange rates by Virrage Images via Shutterstock

The dollar index (DXY00) increased by +0.35% on Thursday, driven by robust US interest rate differentials as the 10-year Treasury yield rose +4 basis points to a 1.5-year high, coinciding with a >6% surge in oil prices. A stronger US labor market, reflected in slightly higher-than-expected unemployment claims, further supported the dollar.

This rally was bolstered by safe-haven demand following Iran-backed Houthi attacks on Saudi oil tankers in the Red Sea, expanding oil disruption beyond the Strait of Hormuz and risking Red Sea shipping. President Trump signaled potential “massive” military action against Iran, though he elaborated on Axios that decisions were “close to being made.”

The Houthis warned against approaching Saudi ports, threatening oil exports via Yanbu—a Red Sea hub used to bypass the closed Strait of Hormuz. Concurrently, US-Iran clashes entered their 12th consecutive day, with the US maintaining its Persian Gulf oil blockade.

Markets priced a 36% chance of a +25 basis point rate hike at the July 28-29 FOMC meeting.

EUR/USD (^EURUSD) dropped -0.33% due to dollar strength, yet the euro found support as German 10-year bund yields hit a 15-year high, reflecting oil price and inflation pressures.

The ECB maintained its 2.25% deposit rate at its September 10 meeting, citing pending data before further hikes. However, President Lagarde noted “upside inflation risks,” with markets assigning a 92% probability of a +25 bp hike at the next session.

USD/JPY (^USDJPY) rose +0.41%, pushing the yen to a 39-year low against the dollar. Japanese authorities intervened to stabilize the yen after it breached 160 yen/USD, a threshold previously prompting market interventions.

Markets assigned a 2% chance of a +25 bp BOJ rate hike at its July 31 meeting.

August COMEX gold (GCQ26) fell -101.70 (-2.45%), and September silver (SIU26) dropped -2.244 (-3.72%) as the stronger dollar and rising bond yields pressured precious metals. Safe-haven demand post-Houthi attacks provided some support.

Gold and silver saw outflows as bullion ETF long positions hit 9.75-month and 1-year lows, respectively, after prior peaks in February and December. Meanwhile, China’s PBOC added 480,000 ounces to its gold reserves in June, marking 20 consecutive months of accumulation.

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