Major currency pairs traded within familiar ranges early Tuesday as investors avoided making aggressive moves while monitoring developments in the Middle East. Attention now turns to Germany and the Eurozone’s ZEW Economic Sentiment surveys, while the US economic calendar remains light for the remainder of the day.
After Monday’s volatile session, crude oil prices eased modestly, with West Texas Intermediate (WTI) slipping around 0.5% to trade near $82 per barrel. Oil initially retreated after reports suggested mediators had proposed a 10-day ceasefire between the United States and Iran to revive diplomatic negotiations. However, hostilities continued to escalate.
US President Donald Trump warned that Iran would face consequences following the deaths of American service members, while US forces carried out strikes for a tenth consecutive day, targeting areas near Sirik, Bandar Abbas, Qeshm Island, Chabahar, and Konarak. Iran responded with attacks on US assets across the Gulf, keeping geopolitical tensions elevated.
Oil Supported by Ongoing Geopolitical Risks
Despite signs of diplomatic engagement, analysts remain cautious. Deutsche Bank noted that Iran acknowledged receiving proposals from international mediators, but escalating rhetoric from both Yemen’s Houthi movement and President Trump helped push Brent crude to settle 1.27% higher at $89.22 per barrel.
OCBC warned that any broader escalation could revive concerns over a prolonged disruption to global oil supplies, potentially lifting crude prices back above $100 per barrel. Such a scenario could increase market volatility, weaken demand for carry trades, and reinforce demand for the US Dollar as investors seek safe-haven assets.
Fed Faces Fresh Inflation Concerns
The US Dollar Index (DXY) extended Monday’s gains by more than 0.2%, although it traded sideways just below the 101.00 level during Tuesday’s European session.
According to Commerzbank’s Volkmar Baur, persistently high energy prices could make it increasingly difficult for the Federal Reserve to avoid raising interest rates. While policymakers typically focus on core inflation, sustained increases in oil prices risk feeding into broader inflation through second-round effects, complicating the Fed’s policy outlook.
Sterling Softens Despite Stable Labor Market
UK labor market data showed the ILO unemployment rate remained unchanged at 4.9% in the three months to May. Meanwhile, average earnings excluding bonuses increased 4.3% year-over-year, below expectations of 4.5%.
The softer wage growth limited Sterling’s recovery, although GBP/USD edged slightly higher to around 1.3450 after three consecutive daily declines. Investors now await Wednesday’s UK inflation report.
New Zealand Dollar Outperforms After Inflation Surprise
New Zealand’s second-quarter inflation accelerated more than expected, with the annual Consumer Price Index (CPI) rising to 4.1%, up from 3.1% in the previous quarter and exceeding forecasts of 4.0%.
The stronger inflation reading boosted expectations that the Reserve Bank of New Zealand could maintain a restrictive policy stance, lifting NZD/USD above 0.5850, its strongest level since early June.
Euro, Canadian Dollar and Yen Hold Steady
EUR/USD traded quietly around 1.1420 after posting modest losses on Monday.
USD/CAD remained above 1.4050 despite Canadian inflation slowing to 2.8% in June from 3.2% previously. The Canadian Dollar also faced pressure after the White House announced that President Trump would impose 50% tariffs on most Canadian imports, citing what Washington described as discriminatory treatment of US automobiles, alcohol, and dairy products.
Meanwhile, USD/JPY held near 162.50. Japanese Prime Minister Sanae Takaichi stated that the government would continue balancing economic support with fiscal sustainability while working to preserve market confidence.
THE ETERNAL SOVEREIGN 
Leave a comment