Yen Spikes on Iran Offer, But Interest Rate Gap Takes Over
The Japanese Yen spiked after Iran offered to reopen the Strait of Hormuz, but its gain was short-lived as traders focused on the interest rate gap between Japan and the US.
Iran's offer to reopen the strait within seven days, contingent on the US easing military pressure, was seen by traders as a proposal rather than a concrete move. The country's parliament speaker, Mohammad Baqer Qalibaf, said Iran would never give in to US pressure.
The Yen initially rose against the Dollar but quickly reversed course after traders looked at the rate gap between Japan and the US. The Bank of Japan's interest rate is 1.25%, while the Federal Reserve's midpoint is 3.875%.
Futures predict the Fed's rate will rise to near 4.2% by December, a level that would widen the rate gap in favor of the Dollar. Boston Fed President Collins said she expects one more interest rate hike before the end of the year and has supported the September increase.