USD hovers near 52-week high on US-Iran tensions

Today’s headlines

What’s happening: The US dollar edged higher this morning amid escalating tensions between the US and Iran.

What happened: A fresh wave of US strikes against Iran sent crude oil prices higher, sparking inflationary concerns.

Overall investor sentiment remained low following last week’s sharp market volatility, lending support to the safe-haven US dollar.

Why it matters: Crude oil prices extended gains this morning with the US continuing its attacks on Iran.

With Washington intensifying airstrikes, Tehran responded with attacks on American allies across the Gulf region, particularly Kuwait. Strikes on critical infrastructure, including power plants, sparked concerns over supply chain disruptions.

The interim ceasefire arrangement has effectively ended, with the closure of the Strait of Hormuz and US blockade of Iranian ports.

Data released by the US on Friday showed the University of Michigan’s consumer sentiment index jumped to 54.4 in July, topping market estimates of 51.0. This marked the second consecutive monthly improvement after May’s record lows. US industrial production grew by 0.1% in June, matching the previous month’s pace but coming in below market expectations of 0.2%.

US export prices declined 0.6% in June, following a 1.2% gain in May, while US import prices rose by 0.3%, easing from May’s 1.7% surge.

Inflation data released by the US last week showed a cooler-than-expected reading. Investors continue to expect the Federal Reserve to keep its benchmark interest rate unchanged at its meeting on July 29. Markets widely expect the US central bank to hike rates in September.

The US dollar index, which measures the greenback’s performance versus a basket of major peers, edged higher to 101.78 this morning.

The EUR/USD forex pair declined around 0.1% to $1.1434, while the GBP/USD pair slipped to 1.3450.

What to watch: Investors will keep an eye on escalating tensions between the US and Iran.

Data on CB leading index (1800 UAE Time) from the US will be released today. Analysts expect the CB leading index to rise by 0.2% in June following a 0.1% gain in May.

The markets today

European stocks in focus today ahead of ZEW economic sentiment index

Context: Equity markets in Europe closed mostly lower on Friday as investors digested the latest economic data.

Details: Data released on Friday showed that the Eurozone’s current account deficit narrowed to €6.19 billion in May, from €6.57 billion in the year-ago period. The improvement was driven by a reduction in primary income deficit.

The goods surplus fell to €9.45 billion, while the services surplus rose to €19.99 billion from €16.42 billion. For the January–May period, the region’s current account surplus widened to €67.5 billion from €64.37 billion in the year-ago period.

Equity markets in Europe remained under pressure amid the broader global tech selloff, with shares of ASML Holding and STMicroelectronics leading the decline. Shares of Burberry also fell around 6% following the release of quarterly results.

Rising tensions between the US and Iran also impacted overall market sentiment on Friday.

Meanwhile, investors widely expect the European Central Bank to hike its benchmark interest rate in September and anticipate another increase by spring 2027.

The STOXX Europe 600 Index fell 0.34% to close at 641.53, while the FTSE 100 gained 0.27% to settle at 10,600.37 on Friday. Germany’s DAX 40 declined 0.34% to 24,830.98, while France’s CAC 40 lost 0.47% to close at 8,338.81.

What to watch: Investors will continue monitoring the US-Iran situation.

Data on the Eurozone’s ZEW economic sentiment index and Germany’s ZEW economic sentiment index will be released on Tuesday. The ZEW indicator of economic sentiment for the Eurozone, which jumped by 18.6 points from the previous month to 9.5 in June, is expected to rise further to 11.5 in July. Analysts expect Germany’s ZEW indicator of economic sentiment to jump to a reading of 18 in July from 10.5 in June.

Other Markets: Asian indices traded mixed this morning, with Hong Kong’s Hang Seng index and China’s CSI 300 index up by 2.18% and 1.23%, respectively, and Japan’s Nikkei 225 down by 4.03%.

The news shaping the markets

Russia announced one of its biggest ballistic missile attacks at Kyiv since the beginning of the conflict. The news sent the USD/RUB pair higher in forex trading this morning.

The People’s Bank of China left its key lending rates unchanged at record lows for the 14th consecutive month in July, in-line with market estimates, exerting pressure on the USD/CNY forex pair.

Brazil’s IBC-Br economic activity index grew by 0.1% in May. This being a slowdown from the previous month’s 0.5% growth sent the USD/BRL pair higher in forex trading this morning.

Malaysia’s annual inflation rate came in at 1.9% in June, below market estimates of 2.0%, which exerted pressure on the USD/MYR forex pair.

New Zealand’s trade surplus shrank to NZ$0.02 billion in June from NZ$0.16 billion in the year-ago month. Although the figure missed market estimates of NZ$0.25 billion, the NZD/USD pair rose in forex trading this morning.

What else to watch today

India’s infrastructure output (1530 UAE Time), Canada’s inflation rate (1630 UAE Time), Turkey’s central government debt (1830 UAE Time) as well as Argentina’s balance of trade (2300 UAE Time).