Oil prices jumped and the U.S. dollar strengthened as new signs of escalation in the Iran conflict dimmed prospects for a near-term reopening of the Strait of Hormuz. Japanese Finance Minister Tsuyoshi Kato warned that authorities remain highly vigilant against speculative moves keeping the yen weak, providing brief support for the currency. The Bloomberg Dollar Spot Index rose 0.2%, reaching its highest level since April 13. "U.S. actions regarding the Strait of Hormuz and Iran's activities increase the tail risk of another escalation," said Aroop Chatterjee, a strategist at Wells Fargo. "It is reasonable to see oil prices climbing persistently alongside a stronger dollar." U.S. business activity expanded at a faster pace in April, driven by the manufacturing sector's strongest growth in nearly four years, as war-related supply disruptions prompted companies to rush to stockpile goods. Data released on Thursday showed output prices rising at the fastest rate since mid-2022. Commenting on the PMI report, Andrew Hazlett, a forex trader at Monex Inc., said the price surge is concerning. The USD/JPY pair rose 0.2% to 159.74. Finance Minister Kato warned that while Tokyo remains highly alert to speculative moves suppressing the yen, officials are maintaining close, round-the-clock contact with their U.S. counterparts. The EUR/USD pair fell 0.2% to 1.1686; Eurozone business activity unexpectedly contracted for the first time since late 2024, with the Iran conflict pressuring consumers and causing a significant slowdown in the service sector. "For the ECB next week, oil prices remain above their March forecast baseline and are not far from an adverse scenario," said Jordan Rochester, a strategist at Mizuho International. He expects policymakers to strike a hawkish tone because "it is difficult to be dovish with oil prices high and no clear timeline for negotiations." "The ceasefire is extended, Iran is playing for time, and there have been no clear signs this week that diplomacy will prevail," he added. The NZD/USD pair fell 0.9% to 0.5852, making the New Zealand dollar the worst performer among G-10 currencies.
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