Dollar firms as Hormuz tensions, Starmer crisis rattle markets

Dollar Firms and Pound Drops as Hormuz Tensions and UK Political Turmoil Weigh on Markets

The U.S. dollar is poised to strengthen as trading opens Monday, with investors seeking safety amid renewed tensions over the Strait of Hormuz and growing political uncertainty in the United Kingdom. Sterling fell to around $1.321 last week and faces further pressure as Prime Minister Keir Starmer is widely expected to announce a timeline for his resignation.

Hormuz Crisis Rattles Markets

Iran announced the closure of the Strait of Hormuz on Saturday, citing Israeli strikes on Lebanon and accusing the United States of failing to honor commitments under the ceasefire framework signed just days earlier. The U.S. military disputed Iran’s claims, with Navy Captain Tim Hawkins, a spokesperson for U.S. Central Command, stating that “Iran does not control the Strait of Hormuz” and that commercial shipping continued to transit the waterway. U.S. Central Command said 55 commercial vessels passed through the strait on Saturday.cnbc

The conflicting claims have cast doubt over the U.S.-Iran memorandum of understanding signed last week in Switzerland, which called for reopening the strait, lifting the U.S. blockade on Iran’s maritime trade, and allowing Iran to resume oil exports. Vice President JD Vance headed to talks as the situation remained fluid.nytimes

Sterling Under Pressure From Starmer Crisis

The British pound, which slid to a two-month low of $1.321 last week, faces additional selling pressure as reports emerged Sunday that Starmer is expected to announce his resignation timeline as early as Monday. The PBS reported that Starmer is “confronted with a pivotal choice: resign or confront a potential challenge” from Andy Burnham, who won the Makerfield by-election on Thursday with 55% of the vote.npr

Business Secretary Peter Kyle confirmed Sunday that Starmer was taking time to consider “the political realities,” while The Observer reported on its front page that the prime minister was “expected to resign” the following day. The GBP/USD pair fell to 1.3208 on Saturday, down 0.17% from the previous session.aljazeera

Treasury Yields and Fed Expectations

Two-year U.S. Treasury yields have surged following the Federal Reserve’s hawkish stance at its June meeting under new Chair Kevin Warsh, reaching 4.20% on June 17. The 2-year yield jumped more than 16 basis points on the Fed decision day — the largest such move since March 2008, according to MUFG. The Fed held rates steady at 3.5%-3.75% but removed language suggesting future rate cuts, signaling potential hikes ahead.stlouisfed

The dollar-yen pair has been trading near the 160-161 range, with the yen weakening despite expectations of further Bank of Japan rate increases. J.P. Morgan Global Research maintained its USD/JPY target at 160 for the third quarter, citing a bearish outlook for the yen through 2026.mtfxgroup