Today’s Market Outlook
Safe-Haven Dollar Demand Drives the Market as Traders Watch for Weekend Position Adjustments
■ Market Overview
The Tokyo session has remained relatively subdued, with price action largely confined to narrow ranges.
However, the dollar strengthened during the previous overseas session and continues to hold those gains today.
The main driver is the escalating exchange of attacks between the United States and Iran.
At the same time, concerns over commercial shipping in the Red Sea have intensified, further worsening the situation in the Middle East.
WTI crude oil surged into the mid-$93 area during the previous New York session.
Although some profit-taking has emerged today, prices remain elevated above $91.
In FX, safe-haven demand for the U.S. dollar remains the dominant market theme.
USD/JPY is trading in the upper 163 area and is approaching 164.
EUR/USD remains in the upper 1.13 area, with the 1.14 level acting as resistance.
GBP/USD has fallen into the lower 1.33 area and may test a break below the major figure.
Overall, broad dollar-buying pressure remains firmly in place.
■ USD/JPY
USD/JPY is trading in the upper 163 area, with the 164 level coming into view.
The first major driver behind the rise is safe-haven demand for the dollar.
As tensions between the United States and Iran escalate and conditions in the Red Sea deteriorate, investors are increasingly favoring the dollar as a defensive asset.
Concerns that elevated crude oil prices could persist are also weighing on the yen.
As Japan is a major energy importer, higher oil prices tend to worsen the country’s terms of trade.
This creates additional selling pressure on the yen and supports further gains in USD/JPY.
Global supply-chain disruptions and rising energy costs are also being viewed as potential sources of future inflation.
New U.S. tariffs taking effect today are gradually being priced in as another source of global inflationary pressure.
In this environment, central banks around the world may face greater pressure to raise interest rates.
Although expectations of earlier Bank of Japan tightening remain present, markets are placing greater emphasis on the prospect of rate increases by other major central banks.
As a result, the incentive for yen-funded carry trades remains intact, supported by the persistent interest-rate differential between Japan and the United States.
■ Intervention Risk
With USD/JPY approaching 164, concerns over intervention by the Japanese government and the Bank of Japan are increasing.
In its latest report, the U.S. Treasury warned that excessive exchange-rate volatility was undesirable after the yen fell to its weakest level in approximately 40 years.
The report also drew attention for urging the Bank of Japan to continue raising interest rates.
Finance Minister Katayama has also confirmed that Japanese and U.S. authorities remain in close contact around the clock.
She reiterated that Japan is prepared to take decisive action in the foreign-exchange market if necessary.
So far, however, the reaction in USD/JPY has been limited.
The market continues to view the structural forces supporting dollar strength and yen weakness as firmly entrenched.
Ahead of the weekend, attention is turning to whether authorities conduct rate checks or move toward direct intervention.
A rapid break above 164 would be particularly likely to intensify intervention concerns.
■ U.S. Dollar
The dollar remains well supported by safe-haven demand.
The worsening situation in the Middle East is reinforcing expectations of higher oil prices, stronger inflationary pressure, and rising U.S. yields.
This combination remains supportive for the dollar.
EUR/USD is trading in the upper 1.13 area, with gains above 1.14 proving difficult to sustain.
GBP/USD has fallen into the lower 1.33 area and may test a break below the major figure.
With the weekend approaching, short-term profit-taking and position adjustments are likely.
However, as long as geopolitical risks remain elevated, a sustained and one-directional decline in the dollar is unlikely.
■ Middle East Developments
The situation in the Middle East continues to deteriorate.
The exchange of attacks between the United States and Iran remains ongoing, while concerns over commercial shipping in the Red Sea have intensified.
Iran’s Islamic Revolutionary Guard Corps reportedly attacked Al Salem Air Base in Kuwait on July 24.
This has reinforced expectations that the conflict may become prolonged.
WTI crude oil surged into the mid-$93 area during the previous New York session and remains above $91 today.
Higher oil prices are increasing both inflation concerns and downside risks to the global economy.
As a result, risk aversion and safe-haven dollar demand are likely to emerge simultaneously.
Markets will remain highly sensitive to further developments involving U.S. and Iranian military operations, attacks on shipping in the Red Sea, and headlines concerning the Strait of Hormuz.
■ Crude Oil Market
Crude oil continues to trade at elevated levels.
WTI surged into the mid-$93 area during the previous session and remains above $91 today.
If prices remain at these levels, inflation forecasts across major economies are likely to face renewed upside pressure.
For Japan, as a major energy importer, higher crude oil prices tend to worsen the terms of trade and increase selling pressure on the yen.
For the United States, higher oil prices may reinforce inflation concerns and support expectations of tighter monetary policy.
In other words, rising crude oil prices place upward pressure on USD/JPY from both sides of the equation by supporting the dollar and weakening the yen.
Today’s U.S. weekly petroleum inventory data and further Middle East headlines could generate another significant move in oil prices.
■ Equity Markets
Equity markets remain focused on geopolitical risks and corporate earnings.
The worsening Middle East situation and higher crude oil prices are clear headwinds for equities.
At the same time, U.S. technology and AI-related shares continue to attract investment flows, meaning strong earnings could still provide support to the broader market.
With the weekend approaching, investors may reduce risk exposure and adjust positions.
A sharp decline in equities could trigger risk-off buying of the yen.
For now, however, safe-haven dollar demand and yen selling linked to higher oil prices remain the stronger forces, limiting the downside in USD/JPY.
■ Today’s Key Economic Data
Preliminary PMI data from several major economies will be the main focus later today.
The key releases include:
French Preliminary PMI
German Preliminary PMI
Eurozone Preliminary PMI
UK Preliminary PMI
U.S. Preliminary PMI
Canadian Industrial Product Prices
Markets are likely to react more strongly than usual to differences in PMI performance across regions.
A stronger-than-expected U.S. PMI would confirm the resilience of the U.S. economy and could trigger another round of dollar buying.
By contrast, weak European or UK PMI data would likely place additional pressure on the euro and sterling.
■ Speaker and Survey Events
ECB-related developments will dominate today’s scheduled commentary and survey releases.
ECB Survey of Professional Forecasters
ECB Consumer Inflation Expectations
UK Decision Maker Panel Inflation Survey
Event featuring ECB Chief Economist Philip Lane
Following yesterday’s ECB meeting, markets will reassess the outlook for European inflation and economic growth.
The UK Decision Maker Panel survey will also provide useful guidance ahead of next week’s Bank of England Monetary Policy Committee meeting.
The Federal Reserve has entered its communications blackout period, making fresh policy comments from U.S. officials unlikely.
On the political calendar, President Trump’s attendance at the White House Correspondents’ Dinner will also attract some attention.
■ Key Focus for London and New York
Markets will closely monitor:
- Whether USD/JPY breaks above 164
- Whether intervention concerns generate actual yen buying
- Whether the U.S. PMI supports further dollar demand
- Whether WTI crude oil holds above $91
- Any new Middle East-related headlines
- Whether weekend position adjustments intensify in equities
- Whether EUR/USD can recover above 1.14
- Whether GBP/USD tests a break below 1.33
The main focus will be the balance between a potential break above 164 in USD/JPY and the rising threat of intervention.
Safe-haven dollar demand remains strong, but growing concern over action by Japanese authorities means sharp moves are possible in either direction.
■ Bottom Line
Today’s market remains centered on safe-haven demand for the U.S. dollar.
The exchange of attacks between the United States and Iran is intensifying, while concerns over shipping in the Red Sea are also worsening.
WTI crude oil surged into the mid-$93 area during the previous session and remains above $91 today.
Higher oil prices are generating inflation concerns and supporting the dollar in the United States, while worsening Japan’s terms of trade and increasing downward pressure on the yen.
USD/JPY is trading in the upper 163 area and is approaching 164.
However, strong warnings on exchange-rate stability from the U.S. Treasury and Finance Minister Katayama mean intervention concerns are likely to intensify further.
For the remainder of the session, markets will assess preliminary PMI data, crude oil prices, U.S. Treasury yields, Middle East developments, and weekend position adjustments in equities to determine whether the dollar’s advance can continue or whether a broader correction begins ahead of the weekend.
