USD Bounces Back Amid US-Iran Escalation, Focus Turns to US CPI

The US dollar rebounded this week as tensions between the US and Iran escalated. The two countries exchanged attacks, prompting concerns about oil prices and inflation worries.

Oil prices extended their gains, and interest rate expectations became more hawkish across the board. The chances of a July hike jumped to 34%, and total tightening by year-end increased to 38 bps.

However, Trump's statement that he doesn't think the war will restart and his claim that the Iranians called him to make a deal led to some minor dovish repricing and triggered pullbacks across the board.

The focus remains on the upcoming US CPI report, which could give the USD/JPY pair a boost if the data surprises to the upside or trigger a bigger pullback if it comes out lower than expected.