Renewed hostilities between the United States and Iran over the weekend, including US airstrikes on Iranian targets and Iran's closure of the critical Strait of Hormuz, have triggered a risk-off mood across global financial markets [2][4]. The US Central Command reported strikes on more than 300 Iranian targets in three days, with 140 hit on Saturday alone [4]. Iran confirmed several explosions near Sirik, west of Bandar Abbas, Qeshm, and Jask, and announced the closure of the Strait of Hormuz 'until further notice,' a move impacting nearly 20% of global energy supply [2][4].
The Australian Dollar (AUD) underperformed its major peers, trading 0.32% lower to near 0.6930 against the US Dollar (USD) during the early European session, making it the weakest among major currencies today [1]. The Japanese Yen (JPY) attracted fresh sellers due to concerns about energy supply disruptions, given Japan's reliance on Middle Eastern oil, and a wide interest rate gap between Japan and other economies [3]. The GBP/JPY cross rebounded slightly after dipping to mid-216.00s, but remained below 217.00, supported by easing UK political uncertainty and hawkish Bank of England bets [3]. The Bank of Japan raised its policy rate to 1% in June, the highest since 1995, while the BoE's base rate stands at 3.75%, maintaining a 275 basis point differential [3].
Asian equity markets responded sharply to the geopolitical developments. South Korea's KOSPI led losses, plunging more than 7.95% to 6,880, with Samsung Electronics shares down nearly 7% and SK Hynix slumping 11% [2]. Japan's Nikkei 225 dropped 2.20% to 67,040, while China's SHANGHAI index fell 1.70% to 3,930. The Hong Kong Stock Exchange bucked the trend, rising 0.1% to 24,200. India's Nifty50 was down 0.27% to 24,141, and other Southeast Asian markets also traded lower [2].
The Indian Rupee (INR) opened sharply lower against the US Dollar, with USD/INR jumping to a six-week high around 95.80, as higher oil prices and a stronger USD weighed on oil-importing economies [4]. The MCX Crude Oil contract expiring July 20 rose 4.6% to Rs. 7,127 [4]. The US Dollar Index (DXY) traded 0.15% higher to near 101.15 [1][4]. Foreign Institutional Investors (FIIs) remained net buyers in Indian equities on Friday, investing Rs. 2,603.72 crore, the highest one-day buying since June 19 [4].
Looking ahead, market participants are cautious ahead of key inflation data releases. The US core CPI for June is expected to grow at a steady pace of 2.9% YoY, with monthly inflation seen rising 0.3%, faster than May's 0.2% [1][4]. India’s retail CPI is expected at 4.3% YoY, up from 3.93% in May, potentially prompting expectations of RBI rate hikes [4]. Comments from Federal Reserve Chair Kevin Warsh during his two-day testimony starting Tuesday are also awaited [1][4]. Analysts note that intervention risks and a hawkish Bank of Japan could limit JPY losses, while the BoJ may revise up its economic growth forecast for fiscal 2026 and keep focus on inflation risks at its upcoming policy meeting [3].
CONCLUSION
Escalating US-Iran tensions and the closure of the Strait of Hormuz have led to a surge in oil prices, a stronger US Dollar, and sharp declines in Asian equities and oil-importing currencies. Investors are bracing for further volatility as they await key inflation data and central bank commentary. The market remains highly sensitive to geopolitical developments and monetary policy signals.