Energy Continues To Lead Broader Macro Sentiment

OVERVIEW : Wednesday, July 22nd, 26’

 Markets remained focused on the US-Iran conflict, with the US carrying out an 11th consecutive night of strikes against Iran. The tone remained escalatory after President Trump warned that any Iranian attack on shipping in the Strait of Hormuz would be met with strikes on Iranian bridges and power plants, while the IRGC responded by threatening electricity infrastructure across US regional allies. Iran also reiterated that no negotiations are currently taking place, although communication through intermediaries continues. Oil stayed bid throughout the session as markets continued pricing disruption risks around the Strait of Hormuz, with crude extending gains after reports Trump is considering strikes on Iran's Pickaxe Mountain underground nuclear facility. Rubio maintained the US remains open to diplomacy but said Iran is not serious about negotiations, leaving markets focused on further military developments rather than diplomatic progress. Overall, geopolitics remained firmly in control of price action, with energy markets continuing to lead broader macro sentiment.
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US DOLLAR

USD was well supported on the day, with very little on the economic calendar and geopolitics remaining the clear driver. Escalating US-Iran tensions, firmer oil prices and the broader risk backdrop kept demand for the Dollar throughout the session, while higher Treasury yields also provided support. Trade headlines remained in the background after reports the US will impose new tariffs on dozens of countries once the current 10% levy expires, but the geopolitical backdrop continued to dominate price action.

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EURO

EUR remained well bid throughout the day, supported by steady demand despite the lack of major domestic data. Focus remains on Thursday’s ECB meeting, where rates are widely expected to be left unchanged, although markets continue to look for a slightly more hawkish tone given elevated energy prices and ongoing geopolitical risks. Any signal that the ECB remains concerned about inflation would continue to provide support for the Euro.

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GREAT BRITISH POUND

GBP had a choppy day, ultimately closing marginally higher. Inflation came in broadly in line with expectations, with the headline cooling slightly to 2.6% YoY, easing the immediate pressure on the BoE to tighten further. Markets continue to price only a small chance of a hike next week, although one remains fully priced by November. Overall, the inflation report had little lasting impact, with broader market sentiment remaining the main driver.

Data:

  • UK Inflation Rate YoY (Jun) Y/Y 2.6% vs. Exp. 2.7% (Prev. 2.8%); Services 3.6% (prev. 3.7%).
  • UK Inflation Rate MoM (Jun) M/M 0.1% vs. Exp. 0.1% (Prev. 0.2%).
  • UK Core Inflation Rate YoY (Jun) Y/Y 2.6% vs. Exp. 2.5% (Prev. 2.6%).
  • UK Core Inflation Rate MoM (Jun) M/M 0.3% (Prev. 0.3%).


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AUSTRALIAN DOLLAR

AUD was weighed on by broader sentiment flows, although it caught a bid during the late US session to close flat on the day. The currency remained sensitive to the wider risk backdrop, with the initial weakness reflecting softer demand for risk-sensitive assets.

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CANADIAN DOLLAR

CAD outperformed on the day, supported by higher oil prices and renewed escalation headlines around the Middle East.

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NEW ZEALAND DOLLAR

NZD underperformed on the day, weighed by the broader geopolitical backdrop and softer risk sentiment. The currency remained sensitive to the deterioration in global sentiment, with the escalation in Middle East tensions limiting demand for higher beta currencies.

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JAPANESE YEN

JPY was supported on the day after reports suggested the BoJ is considering a faster pace of rate hikes, with markets briefly repricing a more hawkish policy path. The Bloomberg report provided some relief for the Yen, particularly as policymakers remain concerned that JPY weakness is adding to inflation pressures. However, JPY gave back some of its gains later in the day as the initial BoJ-driven support faded due to Middle-East oil flow disruptions. The latest trade data showed a wider-than-expected deficit, with imports rising sharply due to higher crude costs and the weaker Yen

Data:

  • Japanese Exports YY (Jun) 19.3% vs. Exp. 18.6% (Prev. 17%)
  • Japanese Imports YY (Jun) 25.4% vs. Exp. 21.0% (Prev. 12.5%)
  • Japanese Trade Balance (JPY)(Jun) -406.9B vs. Exp. -120B (Prev. -378.7B)


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SWISS FRANC

The currency continued to struggle as markets favoured higher-yielding alternatives, with the lack of domestic catalysts leaving CHF vulnerable to broader positioning flows.