Dollar rally pauses even as Middle East tensions further bolster Fed hike betsUS CPI inflation data and Fed Chair Warsh’s testimony in focusYen falls as Japan has no immediate plans to alter pension fund strategyWall Street and gold slide ahead of today’s key eventsJuly Hike Becomes More Likely, but Dollar EasesThe US dollar strengthened against all the other major currencies on Monday as the US-Iran spat and the closure of the Strait of Hormuz lifted oil prices and, thereby, led investors to revamp their Fed rate hike bets.That said, the greenback is on the back foot today, even as hostilities continued and US President Trump reinstated a blockade on Iranian ships and imposed a 20% fee on vessels wanting to be escorted through the Strait of Hormuz. Perhaps dollar traders wanted to liquidate some of their long positions ahead of today’s US CPI data that could well impact expectations about the Fed’s course of action.For now, following the new escalation and hawkish remarks by Fed Governor Christopher Waller, who said that rates may need to rise if data shows inflation remaining well above 2%, investors are more-than-fully pricing in a 25bps rate increase in September, while a second one was brought forward to January. The probability of the Committee pressing the hike button in July has risen to 43%.All Eyes on CPI Data and Fed Chair Warsh’s TestimonyToday, attention will fall on the US CPI inflation data for June and Fed Chair Kevin Warsh’s semi-annual testimony before the US House Financial Services Committee. He will present the same testimony before the Senate Banking Committee tomorrow, after the PPI numbers are released.Although the inflation numbers may reveal a decent slowdown amid the sharp decline in the year-on-year change in oil prices, hawkish remarks by Warsh about not tolerating hot inflation may further increase the chance of a quarter-point hike later this month, thereby adding more fuel to the dollar’s engines.No Immediate Plan for Japan to Change Pension Fund StrategyThe yen was the weakest-performing currency on Monday as a Reuters report noted that the Japanese government had no immediate plan to change its pension fund strategy and asset allocation.The Japanese currency rallied on remarks by Finance Minister Katayama that the government could consider such a strategy, with today’s headlines serving only as a disappointment to those who bought the yen.Although the possibility of official intervention continues to cast a shadow over the yen’s outlook, especially with dollar/yen trading above 162.00 again, there are no concrete catalysts on the horizon that could change the yen’s fate. Even in the case of intervention, traders may see any pullback in dollar/yen as a renewed buying opportunity as there is little room for the Bank of Japan to become much more hawkish from here as PM Takaichi’s calls for lower rates, as well as her Board appointments, could continue tilting the policy narrative in a more dovish direction.Fed Hike Bets Weigh on Stocks and GoldOn Wall Street, all three major indices closed in the red, with the tech-heavy Nasdaq losing more than 1.5% as inflation concerns and expectations of faster rate hikes by the Fed weighed on the present values of high-growth stocks, which are valued by discounting expected future cash flows. Indeed, technology and semiconductor stocks led the decline, with investors also adopting a cautious stance ahead of today’s events.Gold also slid amid the steepening implied Fed rate path, but once again, the slide was stopped near the psychological round figure of $4,000. Should Warsh sound hawkish enough to increase the probability of a rate hike later this month, the metal may breach that key barrier.