Yen Slides 0.6% to 162.31 as 1-Year Options Turn Dollar-Bullish

Q: Analysts are split on the dollar. Will a hawkish Fed or a Mideast peace deal decide its next big move?

The Fed is more likely to decide the dollar’s next big move, while any Middle East peace deal mainly matters through its effect on oil and inflation. Right now, the dollar has slipped because traders cut expectations for a 2026 Fed hike after June payrolls slowed sharply to 57,000 and oil prices eased. But the Fed’s own June projections were still hawkish: the median year-end policy rate was lifted to 3.8%, implying a hike, and officials broadly saw inflation risks tilted upward. That keeps the dollar supported if incoming data show inflation staying sticky or the labor market remaining tight, which is why some banks such as OCBC still see modest dollar gains in the second half. A peace deal in the Middle East could still be powerful, but more indirectly. The key channel is energy. Hopes for a U.S.-Iran arrangement and eventual reopening of the Strait of Hormuz have already helped pull crude lower, easing inflation fears and weakening the dollar. If that de-escalation holds, it would reduce the need for a hawkish Fed and likely push the dollar lower, in line with forecasts such as Westpac’s call for a weaker DXY by year-end. So the practical test is this: if oil keeps falling and inflation cools, the dollar likely weakens. If inflation proves persistent and the Fed leans toward a hike under Chair Kevin Warsh, the dollar likely rebounds. In other words, the peace deal can change the backdrop, but the Fed still delivers the decisive signal.

3 articles · Updated · Bloomberg · Jul 6

One-year yen options briefly flipped in the dollar’s favor on Monday for the first time in more than three years, signaling traders now expect further weakness in Japan’s currency.
The yen fell 0.6% to 162.31 per dollar, nearly wiping out the rebound sparked by softer-than-expected U.S. payrolls data late last week.
Interest-rate differentials still favor the dollar, while Tokyo has stayed on the sidelines instead of intervening to support the yen.
That leaves the currency back near the 1986 low of 162.84 highlighted earlier Monday, keeping markets focused on whether Japanese authorities will step in if losses deepen.