The ongoing conflict between the United States and Iran has intensified, with US President Donald Trump warning that the US will 'destroy one bridge or power plant' for every Iranian attack on ships transiting the Strait of Hormuz, while Iran has threatened to target infrastructure and energy facilities across the region [1][5]. Iran-backed Houthi militants have attacked two Saudi oil tankers in the Red Sea, further escalating fears of supply disruptions and pushing crude oil prices to their highest levels since early June [3][5].
These developments have had significant effects on financial markets. The US Dollar Index (DXY) weakened to near 101.00 in early European trading hours on Thursday, dropping 0.15% as improved risk sentiment and surging oil prices weighed on the Greenback [1][2]. Despite the decline, the DXY retains a mildly bullish tone above the 100-day simple moving average, with technical resistance at 101.45 and support at 100.60 [1]. Money markets are pricing in a 33.7% probability of a Federal Reserve rate hike this month and a 76.8% chance of at least a quarter-point hike in September, according to the CME FedWatch tool [1]. TD Securities expects the Fed to remain on an extended hold, with the bar for hiking lower but requiring more evidence of inflation and labor market strength [1].
The British Pound (GBP) trades marginally higher near 1.3387 against the US Dollar, as the USD drops despite surging oil prices [2]. The GBP/USD pair struggles to return above the 20-day EMA, with technical resistance at 1.3501 and support at 1.3322 [2]. UOB analysts warn that a daily close below 1.3340 could open the door to further downside toward 1.3300, while the broader view remains range-bound [4]. Societe Generale economists expect the Bank of England to keep rates on hold at 3.75% throughout 2026, with potential rate cuts in 2027 if inflation returns to target [2].
The Canadian Dollar (CAD) has gained traction as rising oil prices support the commodity-linked currency, with USD/CAD attracting sellers near 1.4060 [5]. TD Securities expects trade uncertainty to keep USD/CAD above 1.40 in the near term, but sees scope for a move toward 1.39 by year-end as conditions stabilize [5]. Deutsche Bank notes that the probability of a July Fed hike has fluctuated, reaching 26% by Tuesday's close, up from as low as 10% after the recent US CPI print [5].
Silver (XAG/USD) is trading flat just below $60.00, with upside attempts capped as US Treasury yields rally to fresh highs. The metal was rejected at $61.00 on Wednesday, and buyers emerged in the $58.00s earlier Thursday. The immediate bias remains positive, with resistance at $60.70 and support at $58.46 [3]. The war in Iran and attacks on Saudi vessels have spurred inflationary pressures, pushing US yields higher and keeping silver bulls in check [3].
CONCLUSION
Escalating US-Iran tensions have driven oil prices higher, impacting currency and commodity markets. The US Dollar has weakened, while the Canadian Dollar has benefited from rising oil prices. Market participants are closely watching central bank policy signals and upcoming economic data, with heightened volatility expected as geopolitical risks persist.