Dollar Retreats Slightly as Trump Threatens Iranian Power Plants

The U.S. dollar weakened slightly on Wednesday, retreating from its highest level in over a week as markets paused for breath. However, the decline was contained due to escalating geopolitical tensions in the Middle East and surging oil prices.

In late New York trading, the dollar index (DXY), which tracks the greenback against six major currencies, fell 0.03% to 101.13.

The dollar index had come under pressure last week after U.S. economic data showed a slowdown in inflation. The Consumer Price Index (CPI) annual growth rate eased, and the Producer Price Index (PPI) also showed signs of cooling. Gas station retail sales declined month-on-month, while the University of Michigan's July consumer sentiment index rose to its highest since February, with one-year inflation expectations falling. These indicators suggested the Federal Reserve (Fed) may not need to tighten monetary policy immediately.

However, the June inflation slowdown was largely driven by a drop in oil prices following a temporary peace agreement between the U.S. and Iran.

Now, with tensions between the two nations escalating again, oil prices have surged once more, reigniting market concerns about inflation.

The U.S. and Iran have exchanged attacks for 11 consecutive days, significantly reducing the number of vessels passing through the Strait of Hormuz. Additionally, Iran-backed Yemeni rebels, the Houthis, have threatened another critical shipping route—the Bab el-Mandeb Strait—further fueling fears of global energy supply disruptions.

Against this backdrop, international oil prices continued to climb. Brent crude briefly surpassed $95 per barrel on Wednesday, the first time since June 11.

On Wednesday morning, U.S. President Donald Trump posted on the social media platform Truth Social: "From now on, whenever the Islamic Republic of Iran attacks ships in the Strait of Hormuz with missiles, rockets, drones, or any other weapons, the United States will bomb and destroy a bridge or a power plant, including facilities within or near the capital, Tehran."

The statement immediately drew a response from Iran. Iran’s Tasnim News Agency, citing military sources, said that if the U.S. attacks Iranian bridges or power plants, Iran will target infrastructure and energy facilities tied to U.S. interests in the region in retaliation.

Meanwhile, U.S. Secretary of State Marco Rubio, speaking at the ASEAN summit in the Philippines, said the U.S. remains open to diplomatic solutions, but Iran currently "does not appear to be taking negotiations seriously."

Pound stabilizes, yen rebounds slightly

The British pound against the U.S. dollar was nearly unchanged at 1.3373.

Earlier released UK official data showed the June Consumer Price Index (CPI) annual growth rate declined from 2.8% in May to 2.6%.

Although UK government bond yields remained high on the third day of new Prime Minister Andy Burnham’s administration, easing inflation helped stabilize the pound.

The Japanese yen against the U.S. dollar was quoted at 163.14, largely flat.

The previous session saw the yen fall to its lowest level in 40 years, remaining above the 160 level for over a month. This level prompted the Japanese government earlier this year to intervene in the foreign exchange market with billions of dollars.

The euro against the U.S. dollar rose 0.1% to 1.1410.

Market participants remained cautious ahead of Thursday’s European Central Bank (ECB) interest rate decision, resulting in limited euro volatility.

As of approximately 5:50 a.m. Taiwan time Thursday (23rd), exchange rates were:

Dollar index: 101.1440 (+0.0255%) Euro/USD: 1.1405 (-0.0613%) GBP/USD: 1.3372 (-0.0150%) AUD/USD: 0.6991 (-0.0858%) USD/CAD: 1.4083 (-0.0213%) USD/JPY: 163.0800 (-0.0429%)