Dollar Mixed as Truce Falters

The announcement follows multiple attacks on commercial shipping vessels in the Strait of Hormuz over the last several days. As a result, the U.S. revoked a waiver allowing new sales of Iranian oil and carried out a new round of strikes in Iran, targeting more than 80 sites, including air defense systems, radar sites, and small boats operated by the Islamic Revolutionary Guard Corps (IRGC). In response, the IRGC struck Ali Al-Salem Airbase in Kuwait and the Fifth Fleet naval headquarters at Salman Port in Bahrain. The rapid reescalation of hostilities has driven demand for the Dollar as a safe-haven and has sent oil prices skyrocketing, as uncertainty regarding the navigability of the Strait of Hormuz comes back into play.

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NZD

The New Zealand Dollar leads G10 gains this morning after the Reserve Bank of New Zealand elected to hike interest rates by 25 bps to 2.5% at their meeting overnight, marking their first hike in three years. The Monetary Policy Committee also signaled the potential for further hikes as they look to get inflation under control. Traders are currently positioning for at least one additional hike before the end of the year, potentially as early as September.

EUR

The Euro is down against the Buck this morning as the surge in oil prices following President Trump’s dissolution of the ceasefire with Iran reignites inflation concerns given that the Eurozone is particularly vulnerable to oil shocks as a major energy importer. This complicates the European Central Bank’s policy path moving forward, which has taken a meeting-by-meeting approach up to this point. ECB member and Bundesbank President Joachim Nagel remarked that they are back where they started following the Iran news. Traders have consequently added to bets that the ECB will hike before year end.