The US Dollar (USD) has shown resilience and modest gains against major currencies during the European trading session on Tuesday, supported by safe-haven flows as geopolitical tensions escalate following the US Treasury Department's announcement of expanded sanctions on Iran. The US Dollar Index (DXY) trades slightly higher near 99.10, reflecting strength in the Greenback amid investor concerns that new US sanctions could lift oil prices and US Treasury yields [1][5]. Treasury Secretary Scott Bessent outlined an aggressive strategy to systematically isolate Iran from the global economy, warning that countries maintaining business ties with Iran risk exclusion from the Dollar-based financial system [3][5]. President Trump added that foreign entities face strict timelines to end trade with Tehran or incur US financial penalties [3].
Currency markets responded with notable volatility. GBP/USD trades marginally higher at around 1.3640, maintaining a bullish bias despite the US Dollar's strength. Analysts at Danske Bank noted UK inflation for July was in line with expectations, with headline CPI at 2.9% y/y and core inflation slightly above consensus at 2.6% y/y. Strategists at Scotiabank described GBP/USD's technical backdrop as 'solidly bullish,' suggesting a sustained push above 1.3650/60 could extend gains toward the 1.41 zone over the balance of the year [1]. Meanwhile, EUR/GBP tested weekly lows near 0.8550, as the Euro remained depressed despite upbeat German GDP figures (QoQ: 0.3%, YoY: 1%). ING analysts attributed Sterling's strength to its carry profile in a low volatility environment, with risk aversion supporting the Pound [6].
The USD/CAD pair built on its recovery from a three-month low, trading around 1.3865, up 0.15% for the day. The US Dollar was the strongest against the Canadian Dollar this week, with USD/CAD supported by inflation risks from volatile energy prices and the deepening US-Canada trade war. Technical indicators, including RSI near 62 and positive MACD readings, suggest buyers are stabilizing the pair, with resistance at 1.3900 and further supply at 1.3925-1.3930 [2][5].
NZD/USD extended losses for the second day, trading around 0.5950, pressured by safe-haven demand for the USD amid geopolitical uncertainty. However, downside may be limited as expectations for a Reserve Bank of New Zealand rate hike in September persist, with the swaps curve implying 75bps of tightening to 3.25% over the next twelve months [3].
In commodities, Silver (XAG/USD) slipped below $68.50, trading at $68.40 per troy ounce. The US Treasury's plan to double buyback operations for longer-dated bonds, potentially using up to $1 trillion from the Treasury General Account, has revived the debasement trade and raised concerns about US debt, inflation, and dollar weakness. Commerzbank noted that safe-haven demand for Gold is reinforced by the escalation in US sanctions policy toward Iran, which could also support Silver prices [4]. US stock index futures rose between 0.2% and 0.5% during the European morning, indicating some risk-on sentiment despite currency volatility [5].
Analyst opinions diverge on the sustainability of USD strength. TD Securities argues that the Dollar's recent slide is reinforced by softer US data and the gradual pricing out of Fed rate hike expectations, while increased financial repression and US institutional credibility risks may weigh on the Greenback [5].
CONCLUSION
The US Dollar's modest recovery and safe-haven demand have driven volatility across major currency pairs and commodities, as markets digest the impact of expanded US sanctions on Iran. While technical and fundamental factors support further USD strength in the near term, analyst views highlight potential headwinds from US debt concerns and shifting rate expectations. The geopolitical backdrop remains a key driver, with risk aversion supporting the Pound and precious metals, and traders closely watching for further developments.