US Dollar Strength Continues as Iran Tensions and US Inflation Data Drive Exchange Rates

Key Highlight

Geopolitical tensions boost demand for the US dollar

Renewed military action between the United States and Iran has increased market uncertainty, while concerns over the Strait of Hormuz have pushed oil prices above $79 per barrel. Rising geopolitical risk is supporting demand for the US dollar as a traditional safe haven.

US inflation data takes centre stage

Tomorrow's US Consumer Price Index release will be the key event for global markets. Elevated oil prices increase the possibility of stronger inflation, which could reinforce expectations that the Federal Reserve keeps interest rates higher for longer. Investors will also closely watch Fed Chair Kevin Warsh's congressional testimony for further policy guidance.

Dollar strength remains the dominant market theme

Higher US interest rates, resilient economic growth and increased geopolitical uncertainty continue to favour the US dollar against both sterling and the euro. While positioning in the dollar is heavily weighted, current market conditions continue to support further gains unless inflation data disappoints.

Market Recap

Currency markets were relatively quiet at the end of last week as investors waited for this week's major economic events. However, developments over the weekend quickly shifted market sentiment after renewed conflict in the Middle East increased demand for safe haven assets.

The Japanese yen strengthened against sterling, increasing costs for businesses purchasing yen, while the Norwegian krone weakened, providing more favourable exchange rates for companies buying NOK.

Market positioning also shows investors remain heavily supportive of the US dollar, with bullish positioning at its highest level in over a decade. Although this reflects strong confidence in the currency, it also means any weaker than expected US inflation reading could trigger increased volatility.

Market Overview

Markets have started the week focused on escalating tensions in the Middle East after fresh military strikes between the United States and Iran. The uncertainty surrounding oil supplies has lifted crude prices sharply, adding further inflationary pressure and strengthening expectations that the Federal Reserve could maintain a more restrictive monetary policy.

Attention now turns to tomorrow's US inflation figures, followed by Fed Chair Kevin Warsh's testimony. Together, these events are likely to set the direction for currency markets over the coming days.

The outlook continues to favour a stronger US dollar against both the euro and sterling in the short term, supported by higher US interest rates, stronger economic performance and ongoing demand for safe haven assets.

For businesses with US dollar exposure, this week's data could have a significant impact on exchange rates and international payment costs. Businesses with euro exposure may continue to see relatively stable trading between sterling and the euro for now, although the European Central Bank meeting later this month could become the next major catalyst for movement in that currency pair.

Bottom Line

The US dollar remains the strongest conviction trade this week, supported by economic fundamentals and heightened geopolitical uncertainty. With US inflation data due tomorrow, businesses with upcoming international payments should review their currency exposure, as the outcome could drive significant exchange rate volatility across the major currency pairs.

13th July 2026

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