US Dollar Flat as Oil Slides Further Following China’s Rejection of Iran Sanctions

Last Updated on 26/08/2026

The US dollar is trading mixed against the G10 currencies, with most major pairs moving within narrow ranges of around ±0.1%. The Norwegian krone is the notable exception, falling nearly 0.3% as Brent crude extended its decline for a second straight session, dropping more than 2%. The Canadian dollar remains under pressure from concerns that the US trade war could persist for longer. Meanwhile, despite softer US Treasury yields and a modest rise in Japanese government bond yields, the dollar climbed to a four-day high against the yen near JPY159.50.

China has formally opposed the unilateral and secondary sanctions imposed by the US on Iran and entities doing business with Tehran. Following the UAE’s decision to sever economic ties with Iran earlier this month, China has become Iran’s largest trading partner. US Treasury Secretary Bessent has suggested that a major financial institution could face sanctions in the coming days. Speculation has focused on two major Chinese banks that reportedly received formal warnings from the US Treasury in April. Sanctioning either institution ahead of next month’s Trump-Xi meeting could create significant market disruption.

Prices

G10

• Euro: EUR/USD slipped to around $1.1655 yesterday, marking a fresh three-day low. It briefly dipped to approximately $1.1650 during late Asian trading before rebounding in early European hours to near $1.1675. The previous day’s high was slightly above $1.1685. Last week, European buyers twice pushed the euro toward $1.1710 before North American traders sold into the strength.
• Japanese yen: Despite a nearly five-basis-point decline in the US 10-year Treasury yield yesterday, the dollar remained resilient against the yen. With US yields softer today but Japanese 10-year JGB yields moving higher, USD/JPY reached roughly JPY159.50. The pair has remained range-bound between about JPY158.00 and JPY159.60–159.80 for the past two weeks. While many market participants question the effectiveness of the recent intervention, expectations for a BOJ rate hike next month have surged to around 80%, compared with below 30% before the intervention. The probability of another hike by year-end has also risen to about 60%, from below 10%.
• Sterling: GBP/USD posted an inside day yesterday, remaining within the pre-weekend range of roughly $1.3620–$1.3675, and continues to trade within that band. Momentum indicators are stretched, but the pair could still test a marginal new high. A move below $1.3590–$1.3600 would provide an early indication that a broader consolidation or correction is underway.
• Canadian dollar: The Canadian dollar was the weakest G10 currency yesterday, losing around 0.6%—its largest daily decline since the Federal Reserve delivered a hawkish hold at Warsh’s first meeting as Chair. USD/CAD climbed to around CAD1.3860 yesterday and moved slightly above CAD1.3865 today. The next technical objective is around CAD1.3900–1.3910. The main driver was the two-year interest-rate differential, with the US yield premium widening by nearly 10 basis points to almost 130 basis points.
• Australian dollar: After reaching approximately $0.7180 before the weekend, AUD/USD retreated toward $0.7140 yesterday. It touched a marginal new low today before recovering toward $0.7160. Although momentum indicators remain stretched, the pair could attempt to revisit last week’s high.

Emerging Markets

• Mexican peso: Risk aversion, weaker monthly IGAE data and a downward revision to Q2 GDP growth—from 1.5% to 1.4% quarter-over-quarter—pressured the peso. USD/MXN climbed to around MXN16.9735 before easing toward MXN16.93 as risk sentiment improved. Last week’s high was around MXN17.07–17.08. The peso declined approximately 0.3% yesterday, its largest one-day drop in a month, while the Colombian peso fell about 0.8% and the Brazilian real weakened roughly 0.25%.
• Chinese yuan: After falling to a marginal new low since February 2023 near CNH6.7130 yesterday, USD/CNH recovered toward CNH6.7255 and moved slightly higher today. Both technical and fundamental factors point to a potential period of consolidation. The PBOC fixed the dollar slightly higher for a third consecutive session, at CNY6.7852 versus CNY6.7841 previously. Meanwhile, reports indicate the US may consider an additional 7.5% tariff on Chinese goods over concerns about excess manufacturing capacity ahead of the upcoming Xi-Trump meeting. China’s rejection of the new Iran sanctions adds another layer of tension.
• Indian rupee: The rupee strengthened to a seven-day high, apparently supported by intervention. USD/INR fell to around INR95.39, giving the rupee a 0.35% gain—the strongest daily advance of the month. The dollar settled near INR95.4150, marking its first close below the 20-day moving average, currently around INR95.48, since last Monday.

Other Markets

• Equities: Global equities were generally firmer. Most major Asia-Pacific markets advanced, although Hong Kong and China’s CSI 300 lagged. The regional MSCI index only partially recovered from yesterday’s 1.2% decline. Europe’s Stoxx 600 was flat yesterday but has gained nearly 0.5% today. US equity futures are also higher, with S&P 500 futures up around 0.55% after yesterday’s 0.3% decline. Nasdaq futures have risen about 1% following a roughly 0.75% drop in the index yesterday.
• Bonds: Benchmark 10-year yields declined yesterday, partly reflecting lower oil prices. Reports suggested Treasury officials are considering using the Treasury General Account to support additional government bond purchases, which would inject reserves into the banking system. Such a move could complicate Warsh’s objective of shrinking the Federal Reserve’s balance sheet. With oil prices moving higher today, European yields have fallen roughly 2–4 basis points, while the US 10-year Treasury yield is near 4.67%, compared with just below 4.70% at yesterday’s close.
• Gold and silver: Gold’s four-session rally stalled near $4,681 yesterday, its highest level in more than three months, although it still closed above the pre-weekend high around $4,632. The metal briefly moved above $4,696 today before retreating below $4,619 and is posting modest losses in early European trading. A break below $4,600 could open the way toward $4,540. Silver has struggled to break through $70 for two consecutive sessions. Another failed attempt today triggered some profit-taking, sending silver to a three-day low just below $67.60.
• WTI crude: October WTI remained within the August 20 trading range of approximately $84.25–$87.70 over the previous two sessions before breaking lower today. Prices fell toward $82, reaching a six-day low and touching the 38.2% Fibonacci retracement of this month’s rally from roughly $73 on August 5. The 20-day moving average sits near $81.25, while the next retracement target is around $80.40.

Economic Data and Central Banks

• US: Today’s US calendar features house prices, new home sales, building permits, several regional Federal Reserve surveys and the Conference Board’s August consumer confidence report. However, broader developments—including tougher sanctions on Iran, potential use of the Treasury General Account for bond buybacks and Fed Chair Warsh’s speech at Jackson Hole tomorrow—could overshadow the incoming economic data.
• Mexico: Mexico is due to release Q2 current-account data. Despite maintaining a trade surplus, the country continues to run a modest current-account deficit, which was around 0.5% of GDP last year and is projected by the IMF to remain at a similar level this year. The quarterly figure typically has limited market impact.
• Germany: Germany revised Q2 GDP growth upward to 0.3% from 0.2% and released additional details. Private consumption increased only 0.1% after falling 0.6% in Q1, while capital expenditure declined 0.2% following a 1.3% contraction in the previous quarter. Government spending rose 0.1%, compared with a 0.9% increase in Q1. Separately, the IFO survey showed improving sentiment, with the overall business climate index rising for a fourth consecutive month to 88.8, its highest level since last August.
• Australia: Minutes from the Reserve Bank of Australia’s latest meeting reinforced the hawkish hold message delivered earlier this month. Several policymakers believe another rate increase could still be necessary, while inflation risks remain tilted to the upside. Although the RBA appears in no rush to raise rates again following three hikes earlier this year, markets now price slightly above a 60% probability of another increase before year-end, up from just below 60% last week. A softer July CPI report tomorrow may not materially alter expectations. Headline inflation is forecast to slow to 3.3% from 3.8%, while trimmed-mean inflation could prove stickier at 3.5%, compared with 3.6% previously.

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