Iran Tensions Lift Dollar, Oil Prices

The US dollar extended gains for a third straight session, with its 'petro-dollar' bid enduring due to the US economy's structural shift to a net energy exporter, meaning higher oil prices now raise US terms of trade, as highlighted by a Bank for International Settlements paper. The Euro fell 0.3% against the USD and for a third consecutive day, with EUR/USD trading in a 1.14-1.15 zone, as conflicting signals from US and Iran regarding de-escalation complicated market sentiment.

The British Pound, despite earlier resilience from hawkish Bank of England rate hike expectations, erased gains, with GBP/USD down around 1%, as weak domestic data, including a sharp plunge in UK consumer confidence and declining retail sales, collided with elevated energy prices and geopolitical uncertainty, increasing the UK's stagflation risk profile. Without clear de-risking signals, market positioning remains defensive, suggesting continued vulnerability for the Euro and Pound.