The US dollar moved slightly higher in morning trading as escalating tensions between the United States and Iran increased demand for safe-haven assets.
The greenback advanced against most major currencies. Investors continued to seek exposure to US assets amid rising geopolitical uncertainty and expectations that American interest rates may remain elevated for longer.
US-Iran Tensions Support the Dollar
The US dollar gained as Brent crude oil briefly climbed to around $90 per barrel.
Oil prices rose amid worsening tensions between Washington and Tehran. The move followed a ninth consecutive night of US military strikes against Iran after the deaths of American military personnel in Jordan.
The US Dollar Index, which measures the currency against six major developed-market peers, traded near 100.76 during the morning session.
China Trade Concerns Add to Market Uncertainty
Renewed trade tensions between the United States and China also supported demand for the dollar.
President Donald Trump claimed that China interfered in the 2020 US presidential election. His comments raised concerns about the future of the economic truce between the two countries after tariffs were reduced last year.
Trade disputes between the European Union and China also weakened demand for the euro.
However, the Dollar Index later eased after ending a three-day safe-haven rally linked to the Middle East conflict.
Lower US Treasury yields also placed mild pressure on the dollar. Bond yields declined after softer US inflation data released during the previous week.
British Pound Finds Political Support
The British pound moved slightly higher as investors responded to political developments in the United Kingdom.
Newly elected Labour leader Andy Burnham was preparing to take office as prime minister and announce his cabinet.
Market sentiment improved following reports that Home Secretary Shabana Mahmood could become Chancellor of the Exchequer.
Investors viewed Mahmood as a fiscally pragmatic candidate. This perception helped provide support for sterling ahead of the important autumn budget.
Euro Holds Steady Before ECB Meeting
The euro remained largely unchanged as investors prepared for Thursday’s European Central Bank meeting.
Policymakers are widely expected to leave interest rates unchanged at 2.25%.
However, markets are positioning for relatively hawkish comments from ECB officials. Investors expect the central bank to maintain a strict data-dependent approach heading into the autumn.
Federal Reserve Meeting Comes Into Focus
Currency markets are also preparing for the Federal Reserve’s upcoming policy meeting.
Fed funds futures indicate an 85.6% probability that US policymakers will leave interest rates unchanged at the end of the July 29 meeting.
However, expectations for long-term monetary easing remain limited.
Cleveland Federal Reserve President Beth Hammack recently warned that additional policy tightening could still be necessary if core inflation remains persistent.
Her comments reinforced the view that an immediate shift toward lower interest rates is unlikely.
Oil Reversal Reduces Safe-Haven Demand
Energy markets added further volatility to currency trading.
Crude oil initially moved higher but later reversed its gains and entered negative territory.
The decline followed comments from Tehran suggesting that negotiations with the United States could take place if they served Iran’s national interests.
The statement reduced concerns about an immediate escalation in the conflict.
Lower oil prices also provided some relief to energy-importing European economies. As a result, the safe-haven demand that supported the dollar earlier in the session began to weaken.
