Geopolitical Tensions and Oil Prices Shake Global Markets

Geopolitical tensions and rising oil prices shake global markets as traders await key US unemployment claims data Thursday.

A combination of geopolitical developments and Chinese inflation data shaped the Asia session on Thursday. Crude oil extended its rally after renewed US-Iran tensions raised fresh concerns over potential supply disruptions through the Strait of Hormuz, lifting energy prices and supporting oil-linked currencies while weighing on broader risk sentiment. Investors simultaneously digested China’s June CPI and PPI releases, which offered an updated picture of domestic demand and inflation, shaping expectations around further policy support from Chinese authorities.

US Dollar Holds Firm on Safe-Haven Demand

The US dollar traded with a firm tone, drawing support from safe-haven flows, rising Treasury yields, and growing expectations that the Federal Reserve could keep monetary policy restrictive for longer. Escalating tensions in the Gulf pushed oil prices sharply higher, reinforcing concerns that energy-driven inflation may persist.

The latest FOMC meeting minutes revealed a divided committee, with several officials continuing to flag upside inflation risks. At its June 16-17 meeting, the Fed held the federal funds rate unchanged at 3.50% to 3.75%. Under new Fed Chair Kevin Warsh, policymakers signalled a more cautious and hawkish stance, with nine officials projecting at least one rate hike during 2026. The median outlook shifted toward a higher-for-longer policy path, with the next meeting scheduled for July 28-29.

Gold Extends Losses as Rate Hike Bets Rise

Gold came under pressure Thursday, extending losses from the prior session as stronger inflation expectations and a more hawkish Fed outlook reduced the appeal of non-yielding assets. Rising oil prices added to inflation concerns, further encouraging traders to increase rate hike bets and pulling gold lower as a result.

Geopolitical Tensions and Oil Prices Shake Global Markets

The euro navigated a cautious environment as investors balanced the ECB’s relatively hawkish posture against evolving global conditions. Following the June rate increase, policymakers continued to warn that inflation risks had not fully subsided. Higher oil prices reinforced those concerns, keeping the possibility of further tightening alive. The ECB held its main refinancing rate at 2.15% and its deposit facility at 2.00%, maintaining a data-dependent approach ahead of its next meeting on July 22-23.

Swiss Franc Steady as SNB Holds Rates

The Swiss franc remained largely driven by SNB policy expectations and global risk sentiment. The SNB held its policy rate unchanged at 0.00% at its June 18 meeting, reiterating its readiness to intervene in currency markets if excessive franc appreciation threatens price stability. Furthermore, Switzerland’s June inflation eased to 0.5% year-over-year, comfortably within the SNB’s 0% to 2% target range, leaving little reason for a near-term policy shift. The next SNB meeting is set for September 24.

Pound Firms as BoE Maintains Cautious Stance

Sterling traded with a firmer tone, supported by improving sentiment toward the UK economy and continued expectations of a cautious Bank of England. The MPC voted 7-2 at its June 17-18 meeting to hold the Bank Rate at 3.75%, with two members pushing for a 25 basis point increase to 4.00%. Also, the Bank expects CPI inflation to remain at or above 3% through the second half of 2026. So, the next MPC decision is due July 30.

Canadian Dollar Gains on Oil and Trade Data

The Canadian dollar firmed Thursday, drawing support from higher crude oil prices and stronger domestic trade figures. A four-year high merchandise trade surplus lifted confidence in the Canadian economy, though gains remained contained as markets looked toward the Bank of Canada’s July 16 policy decision. The Bank held its overnight rate at 2.25% at its June 10 meeting, maintaining a restrictive stance aimed at securing inflation at 2% over the policy horizon.

Oil Pushes Higher on Middle East Risk Premium

Oil prices extended gains as geopolitical risk continued to dominate energy markets. Fresh US military strikes on Iran reignited fears over disruptions to global supply, particularly through the Strait of Hormuz, which handles roughly one-fifth of world oil shipments. Brent crude traded close to $79 per barrel, while WTI hovered around $74 to $75 per barrel, as traders built in a geopolitical risk premium amid ongoing conflict uncertainty.

Key Events to Watch

Traders across all sessions will focus on the US Initial Jobless Claims release at 12:30 PM GMT as the primary data point of the day. Several central bank officials also take the stage, and any commentary touching on inflation or rate expectations will attract close attention given the current policy backdrop.

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