Oil surged nearly 10% after the U.S. announced a total blockade of Iran and a 20% Strait toll. The dollar firmed as Fed's Waller flagged a potential July hike, pushing USD/JPY to 162.50.
Oil surged nearly 10% before paring gains late Monday after the U.S. announced a total blockade of Iran and a 20% toll on all goods passing through the Strait of Hormuz. The measures, coupled with fresh strikes on Iranian targets that again hit commercial ships, pushed crude to levels not seen since April before the move faded slightly into the close.
President Trump said he would deliver a speech Thursday evening, a signal the administration may be laying the groundwork for a more extended campaign. The Strait toll – framed as payment for safe passage – drew immediate pushback from shipping and trading desks, several traders said.
The dollar found a second tailwind from Fed Governor Christopher Waller, who completed a full reversal of his earlier dovish stance. Waller said Tuesday's inflation data would be key for his next policy recommendation and flagged that his prior concerns about the jobs market were misplaced. The market priced a 40% chance of a rate hike at the July 29 FOMC meeting, up from roughly 25% late last week.
"If we get another hot reading on core inflation this week, then the FOMC will need to consider tightening monetary policy in the near term," Waller said.
USD/JPY rose steadily but stalled near 162.50 as the intervention threat from Japanese authorities capped the move. The euro sold off after a brief pop in early European trade, falling 30 pips to 1.1383.
In equities, chip names were hit again. Micron fell 4.9% and Intel dropped nearly 7% in a broad tech selloff. Bank earnings kick off Tuesday, with JPMorgan, Goldman Sachs, and Citigroup all reporting before the open.
Treasuries continued to price a higher-for-longer Fed. Two-year yields rose to the highest since February 2025, before the Fed cut rates three times. The long end also sold off, with 10-year yields rising to 4.66% on concern that inflation is becoming embedded.
One pattern that caught traders' attention late in the session: a number of markets finished at the extremes of the day's range. FX pairs, equities (session lows), and bonds (yield highs) all closed at or near their intraday extremes, a setup that often precedes follow-through moves, several traders said.
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