US strikes Iran near Hormuz, pushing dollar to one-week high

The dollar rose to a one-week high against major peers Thursday after the US struck an Iranian military site near the Strait of Hormuz for the second time in three days, while the yen weakened toward levels that triggered Bank of Japan intervention last month.

"The market is pricing in a higher probability of sustained disruption rather than a quick diplomatic resolution," said Elena Fischer, geopolitical risk analyst at Edgen. "Each strike resets the risk premium across FX, energy, and rates."

US Central Command said it shot down four Iranian one-way attack drones over the Strait of Hormuz and struck a ground-control station in Bandar Abbas before a fifth drone could be launched. Brent crude rose 1.27% to $96.20 a barrel, while WTI gained 1.16% to $90.64. The dollar index held near its one-week high, and the yen weakened past 149 per dollar, approaching the 152 level that prompted BOJ intervention in April.

The Strait of Hormuz handles about 21% of global oil trade, and Iran has effectively blockaded the waterway since late February. With 109 commercial vessels already diverted under the US blockade and Iran's onshore oil storage down to about 20 million barrels from a typical 120 million, the economic pressure on both sides is mounting. War Secretary Pete Hegseth said Wednesday the US is prepared to "finish the job" if nuclear talks fail, while Iran's Islamic Revolutionary Guard Corps warned its forces are "lying in wait."

Oil markets remain on edge

Brent crude has swung more than 5% in each of the past three sessions as traders weigh ceasefire headlines against fresh military action. Earlier Wednesday, oil tumbled more than 5% after Iranian state TV reported a draft framework for a potential US deal that would reopen the strait and lift the naval blockade — a claim the White House called a "complete fabrication."

The volatility has pushed Brent's 30-day implied volatility to its highest since the conflict began in late February, according to options market data. The US Treasury also sanctioned the newly created Persian Gulf Strait Authority, which Iran established to manage and collect tolls from vessels transiting the waterway.

Currency intervention risk rises

The yen's slide toward 152 per dollar has revived speculation that the BOJ may intervene for the second time in two months. Japan spent about $60 billion in April to support the currency after it breached that level. The dollar's safe-haven bid has been reinforced by the breakdown in trust between Washington and Tehran, with Iranian officials accusing the US of "gross violations" of a fragile ceasefire.

The last time US-Iran tensions escalated to this degree — during the initial strikes in late February — the dollar index gained 2.3% over two weeks while the yen weakened 3.1% before the BOJ stepped in. If the current trajectory holds, currency markets may face a similar pattern, with the added pressure of oil at nearly $100 a barrel compounding import costs for energy-dependent economies like Japan.

This article is for informational purposes only and does not constitute investment advice.