Dollar Gains as Iran Tensions Fuel Inflation Worries and Global Bond Selloff

The US dollar strengthened on Tuesday as renewed tensions between the US and Iran fueled inflation worries and sparked a global bond selloff. The yen, meanwhile, slid past 160 per dollar for the third straight session, with investors remaining skeptical about Japan's ability to reverse its currency's weakness.

U.S.-Iran hostilities pushed Brent crude futures above $92 a barrel, fueling inflation worries and spurring a bond selloff. The yield on 10-year Japanese government bonds touched 3% for the first time in 30 years, while the yield on 10-year Treasury notes hit its highest since January 2025.

U.S. Treasury Secretary Scott Bessent said he believed Japan's government and central bank would take action to lead to a stronger yen, but this did little to arrest the yen's decline. The currency traded at 160.150 per dollar on Tuesday, breaching 160 for the third straight session.

Investors remain focused on Japan’s still-unfavorable rate differential with the United States and doubts over how aggressively the Bank of Japan will tighten policy, said Joel Kruger, market strategist at LMAX Group in London. Markets appear unconvinced that verbal pressure alone will reverse the yen's weakness, leaving it vulnerable unless the BoJ delivers a clearly more hawkish signal or authorities intervene directly.