Middle East Tensions Fuel Oil and Currency Volatility

Geopolitical tensions in the Middle East have escalated, with reports of US forces disabling Iranian oil tankers and Iran declaring the Strait of Hormuz closed, which initially supported a rise in oil prices. Conflicting reports have emerged, however, as some diplomatic sources claim US-Iran talks remain on track, causing oil prices to pare some gains. This uncertainty has heightened risk aversion in the markets, contributing to a stronger US Dollar as Iran condemned recent US strikes.

Gold and Silver Attempt a Modest Rebound

Precious metals saw some buying interest, with silver prices appreciating above the $64.00 mark after touching multi-month lows. Gold also posted minor gains, attempting to bounce from the psychological $4,000 area but struggling to advance further. The upside for both metals appears limited by a strengthening US Dollar, ongoing geopolitical uncertainty, and market expectations for future Federal Reserve rate hikes.

Strong US Dollar Dominates Currency Markets

The US Dollar strengthened broadly against major currencies, supported by persistent US inflation data and its safe-haven appeal amid geopolitical risks. This strength pushed the Australian dollar to two-month lows and sent the USD/CAD pair to its highest level since November 2025. The dollar's uptrend is expected to remain intact leading into the next FOMC meeting, with the Euro also trading defensively near two-month lows against the greenback.

Central Banks Diverge on Policy Paths

The European Central Bank is expected to deliver a 25 basis point rate hike, but the move is seen as fully priced in by markets, offering limited upside for the Euro. In contrast, the Bank of Canada held its policy rate steady at 2.25%, citing recession concerns and a weak real economy, which has capped gains for the Canadian dollar. Some analysts believe escalating war risks could force the ECB into a more hawkish policy stance to combat inflation.