US Dollar Slips as Trump Claims ‘Total Control’ of Hormuz and CPI Cools

The US Dollar came under mild pressure on Wednesday as forex traders reacted to softer US inflation data while closely monitoring escalating tensions around the Strait of Hormuz. President Donald Trump said the United States has “total control” of the strategic waterway, adding another layer of uncertainty to global energy and currency markets.

Trump said in a Truth Social post that the US naval presence has established control over Hormuz and indicated that Washington intends to maintain its position. His comments come as negotiations with Iran remain unresolved and the strategically important shipping route continues to be a major source of geopolitical risk.

Iran has rejected Trump’s characterization of the situation and continues to link the reopening of the Strait to progress in negotiations with Washington. The conflicting statements from both sides have kept uncertainty elevated and helped support crude oil prices.

US Inflation Eases to 3.4%

Currency traders are also digesting the latest US Consumer Price Index report. Official Bureau of Labor Statistics data showed that headline CPI increased 0.1% month over month in July, while annual inflation eased to 3.4%. Core CPI, which excludes food and energy, rose 0.2% on the month and 2.5% from a year earlier.

The inflation figures were broadly consistent with market expectations and reduced some of the pressure on the Federal Reserve to tighten monetary policy again in the near term.

Following the report, the US Dollar Index slipped toward 99.64, while the benchmark 10-year Treasury yield moved lower toward 4.65%. Market pricing for a September Fed rate increase also declined, reflecting growing expectations that policymakers may remain patient if inflation continues to cool.

Hormuz Risk Keeps Oil Prices Elevated

The softer inflation data would normally provide a clearer bearish signal for the Dollar, but rising oil prices are complicating the picture.

Crude prices remain elevated as uncertainty over Hormuz threatens global energy supply. Oil has moved toward the $90-per-barrel area as negotiations stall and markets assess the risk of continued disruption to Middle Eastern exports.

Persistently high oil prices could eventually feed back into transportation, production and consumer costs, potentially slowing the disinflation trend that the Federal Reserve wants to see.

That creates a difficult backdrop for forex traders. Softer CPI and weaker labour-market data point toward a less aggressive Fed, while geopolitical risks and expensive energy could keep inflation pressures alive.

What It Means for the US Dollar

The immediate outlook for the Dollar remains mixed.

Lower inflation and declining Fed rate-hike expectations are negative factors for the greenback. However, geopolitical uncertainty can sometimes generate safe-haven demand for the US currency, especially if tensions around Hormuz worsen.

EUR/USD and GBP/USD could benefit if US rate expectations continue to soften, while currencies that are particularly sensitive to global risk sentiment may remain volatile as traders react to oil prices and Middle East headlines.

Commodity-linked currencies could also see uneven reactions. Higher energy prices may benefit some oil exporters but weigh on economies that depend heavily on imported fuel.

Forex Outlook

For now, the market is balancing two major themes: cooling US inflation and escalating geopolitical uncertainty.

If inflation continues to moderate and Treasury yields decline, the Dollar could face further downside pressure.

However, renewed disruption in the Strait of Hormuz or another sharp increase in oil prices could revive inflation concerns and increase demand for defensive assets.

The combination means volatility could remain elevated across the Dollar, Gold, Oil and major FX pairs in the coming sessions.