The US Dollar Index (DXY), which tracks the value of the US Dollar (USD) against six major currencies, firmed and traded around 100.90 during European hours on Tuesday, following two days of flat performance. This uptick was attributed to increased safe-haven demand after reports that Iran fired at least two missiles at commercial vessels in the Strait of Hormuz late Monday. Two ships sustained significant damage, though no casualties were reported. The UK Maritime Trade Operations (UKMTO) confirmed that a southbound tanker was struck by an unknown projectile, causing a fire on board [1].
Despite the geopolitical boost, the upside for the Greenback may be limited as traders have priced out Federal Reserve rate hikes for the current month and September. This shift in expectations followed a weaker employment report, which showed fewer jobs added in April, May, and June than anticipated by Wall Street [1].
US economic data showed that business activity in the service sector cooled slightly but remained in expansion, with the June ISM Services PMI easing to 54.0 from 54.5, matching consensus estimates. The Prices Index fell from 71.3 to 67.7, while the Employment Index improved from 47.9 to 51.2, moving out of contractionary territory [1].
Federal Reserve Governor Christopher Waller delivered a speech emphasizing the limits of forward guidance and reaffirmed the Fed's commitment to its 2% inflation target. Waller rejected the idea of using low rates to ease US deficit financing and noted that shifting risks, such as stabilized labor markets and inflation concerns, are influencing policy decisions. The FXS Fed Sentiment Index rose by 1.83 points to 125.72, indicating a hawkish stance and suggesting that markets will continue to expect a vigilant Fed, which is supportive of the Dollar against the Euro and Yen [1].
CONCLUSION
The US Dollar Index strengthened on safe-haven flows amid renewed tensions in the Strait of Hormuz, while a hawkish Fed stance provided additional support. However, softer employment data and the pricing out of near-term rate hikes may cap further gains. Overall, the market remains attentive to both geopolitical developments and Federal Reserve policy signals.