Forex Today: US Dollar firms as Oil surges on Hormuz

On Monday, the US Dollar (USD) experienced a general uptick, with the US Dollar Index (DXY) increasing by approximately 0.2% and holding just above 99.80 as oil prices surged by more than 6% due to the ongoing Strait of Hormuz standoff. Unlike earlier this month, both gold and silver followed the greenback in an upturn, driven by safe-haven demand and energy-related inflation risk.

US President Donald Trump disagreed with Iran's compensation demands over the weekend, stating that Tehran should bear responsibility for the damages across the region, while Iran denied discussing a settlement and set its own conditions for reopening the Strait. With no deal in sight and the US naval blockade further redirecting vessels, the risk premium persisted in Crude and the US Dollar.

West Texas Intermediate (WTI) Oil rose by over 6% to trade near $81.70 per barrel as the reopening of the Strait of Hormuz remained uncertain. Gold gained around 0.9% to trade near $4,380, while Silver outperformed, surging approximately 3.50% to near $65.70. The following table displays the percentage change of the USD against major currencies on Monday.

The USD showed the strongest performance against the Japanese Yen. The heat map illustrates the percentage changes of major currencies against each other, with the base currency listed on the left column and the quote currency on the top row. For instance, if one selects the USD from the left column and proceeds horizontally to the Japanese Yen, the displayed percentage will indicate the USD/JPY rate.

The USD/JPY experienced the largest movement among the majors, climbing more than 0.9% to near the 159.30 region, as higher energy costs and stronger US yields put downward pressure on the Yen. EUR/USD declined slightly to trade below 1.1550, failing to maintain the earlier gains as Middle East tensions bolstered the US Dollar. GBP/USD strengthened around 1.3500, the sole major to gain against the Dollar, remaining at the upper end of its recent range.

AUD/USD fell to near 0.7055, failing to benefit from the Crude rally, as traders squared positions ahead of the Reserve Bank of Australia (RBA) decision. On Tuesday morning, the RBA is anticipated to maintain the cash rate at 4.35%, with the focus shifting to the accompanying Monetary Policy Statement, Rate Statement, and Governor Michele Bullock's press conference for any hints on whether the tightening door remains open.

Early trading on Tuesday will witness the release of the ADP Employment Change four-week average, expected to be around 15K, followed by Existing Home Sales Change for July, forecasted at -2.4% MoM. These releases, though not major, provide insight into the labor and housing situation for midweek. The primary event, however, occurs one day later with US Consumer Price Index (CPI) data due on Wednesday.

With oil pushing inflation risk higher and the Federal Reserve (Fed) adopting a hawkish stance, a robust CPI print would provide another boost to the DXY, while a weak one could trigger a retreat. Agustin Wazne, a Junior News Editor at FXStreet, specializes in Commodities and covers Majors.