US dollar rises amid renewed US-Iran tensions

Today’s headlines

What’s happening: The US dollar gained this morning amid rising safe-haven demand amid escalating US-Iran tensions.

What happened: The greenback recorded gains for the second session in a row after the US conducted fresh strikes near the Strait of Hormuz.

Experts at Goldman Sachs said that the US dollar momentum could continue, led by interest rate differentials and geopolitical factors.

Why it matters: Military forces of the US and Iran exchanged missile and drone strikes over the weekend. With the US continuing to target Iranian territory near the Strait of Hormuz, Tehran announcing the closure of the key waterway, sparking renewed concerns around inflation.

Rising tensions in the Middle East provided a boost to oil prices, taking the spot price for WTI crude oil up 4.1% to $74.33 a barrel this morning.

Inflation concerns triggered speculations of the US Federal Reserve hiking interest rates at least twice by the end of this year.

Minutes from the recent Fed meeting, released last week, showed that some policymakers saw a case for hiking interest rates.

Experts at Goldman Sachs said that the US dollar could hover around historical highs against major peers in the near term, driven by the AI boom, interest rate differentials and elevated geopolitical tensions.

The US dollar index, which measures the greenback’s performance versus a basket of major peers, rose around 0.2% to 101.14 this morning.

The EUR/USD forex pair fell 0.2% to 1.1396, while the GBP/USD pair declined 0.2% to 1.3379 this morning.

What to watch: Investors will keep an eye on the US-Iran conflict. Fed Chairman Kevin Warsh’s testimony before the House ⁠and Senate will also remain in focus.

With elevated inflation concerns, markets will watch data on US CPI and PPI, scheduled to be released later this week. The annual inflation rate in the US, which surged to 4.2% in May, the highest reading since April 2023, is expected to ease to 3.9% in June. The annual producer inflation, which jumped for the fourth straight time to 6.5% in May, is expected to ease to 6.3% in June.

The markets today

European stocks in focus today ahead of some key economic reports this week

Context: Equity markets in Europe closed mixed on Friday amid weakness in the tech sector.

Details: Investors remained cautious on Friday on concerns around whether the massive investments in AI infrastructure will yield sustainable returns.

US President Donald Trump declaring the tentative ceasefire with Iran was “over” and the exchange of missile and drone attacks that followed hit investor risk sentiment. Rising oil prices also sparked inflation-related concerns.

The European Central Bank hiked its benchmark interest rates for the first time since 2023, with investors now expecting another rate hike in September to counter higher inflation driven by surging energy costs.

ASML’s stock fell 2.1% ahead of the release of second-quarter results before the market opens on July 15. Shares of chipmakers Siltronic and Soitec also declined by around 2%. Infineon’s stock declined 1.2% amid the broader tech selloff.

Banking stocks bucked the trend with gains in Eurozone sovereign bonds. Shares of BBVA and Deutsche Bank ended the day higher on Friday.

The STOXX Europe 600 Index rose 0.04% to settle at 641.10, while Euro STOXX 50 declined 0.3%.

London’s FTSE 100 gained 0.24% to close at 10,497.29, Germany’s DAX 40 fell 0.2% to 25,067.09 and France’s CAC 40 added 0.15% to settle at 8,338.97 on Friday.

What to watch: Investors will keep an eye on rising energy prices following the closure of the Strait of Hormuz.

Data on industrial production, current account and inflation rate from the Eurozone will be released this week. Analysts expect Eurozone’s consumer price inflation to ease to 2.8% in June from 3.2% in May. The Eurozone’s current account surplus, which declined to €14.88 billion in April from €20.84 billion in the year-ago period, is expected to narrow further to €8.5 billion in May. Analysts expect Eurozone’s industrial production to grow by 0.3% in May following a 0.1% gain in April.

Other Markets: US trading indices closed higher on Friday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 0.29%, 0.42% and 0.33%, respectively.

The news shaping the markets

With Russian troops increasing attacks on Kyiv, Ukraine’s President Volodymyr Zelenskyy urged allies for a faster delivery of weapons. The news sent the USD/RUB pair lower in forex trading this morning.

New Zealand’s BusinessNZ performance of services index jumped to 50.6 in June from 48.0 in May. This being the first growth in services activity since January lent support to the NZD/USD forex pair.

Canada’s building permits declined by 1.7% to C$12.4 billion in May, versus market estimates of a 2.4% gain, which sent the USD/CAD pair higher in forex trading this morning.

Mexico’s industrial production declined 0.7% year-over-year in May, following 2.3% growth in the previous month. The latest reading coming in weaker than market expectations of a 0.1% decline lent support to the USD/MXN forex pair.

Brazil’s annual inflation rate slowed to 4.64% in June from 4.72% in the previous month. The figure coming in better than market estimates of 4.80% sent the USD/BRL pair lower in forex trading this morning.

What else to watch today

Germany’s current account (1430 UAE Time), India’s inflation rate (1430 UAE Time), Russia’s balance of trade (1700 UAE Time) as well as US monthly budget statement (2200 UAE Time).