Escalation Continue to Drive Oil prices, Treasury yields and the US Dollar

OVERVIEW: Thursday, July 23rd, 26’

Markets remained driven by the US-Iran conflict, with both sides exchanging strikes for a 12th consecutive night. President Trump said Iran is "getting hit so hard" and believes Tehran wants to make a deal, although reports suggested the diplomatic track remains blocked from the US perspective. The geopolitical backdrop intensified further after the Houthis targeted two Saudi oil tankers in the Red Sea, with reports that at least nine ships have stopped transiting Bab al-Mandeb, keeping concerns around global energy supply firmly in focus. The escalation continued to support oil prices, Treasury yields and the US Dollar, with G10 currencies broadly weaker against the Buck as markets continued to price a higher geopolitical risk premium. Risk sentiment remained under pressure throughout the day, with US equities opening and closing lower, while Alphabet and Tesla both fell despite beating earnings expectations as investors focused on AI spending and margin concerns. Elsewhere, the ECB left rates unchanged at 2.25%, with the statement sticking to its data-dependent approach and prompting a modest dovish reaction despite the recent rise in energy prices. In the antipodes, AUD outperformed following a stronger-than-expected employment report, while NZD underperformed, diverging from its recent relative strength.

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US DOLLAR

USD outperformed on the day, with the geopolitical backdrop continuing to drive flows. Higher oil prices, rising Treasury yields and weaker sentiment following disappointing tech earnings kept demand firmly with the Dollar, with Brent (Sep'26) breaking above USD 100/bbl and the US 10-year yield hitting an 18-month high of 4.711%. US data also remained supportive, with initial jobless claims falling to 187k, well below expectations and reinforcing the resilience of the labour market. Overall, the combination of higher yields, elevated energy prices and the broader risk backdrop kept USD well supported throughout the day.

Data:

  • US Continuing Jobless Claims (Jul/11) 1796.0k.
  • US Jobless Claims 4-week Average (Jul/18) 207.5K.
  • US Initial Jobless Claims (Jul/18) 187.0k vs. Exp. 212k.


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EURO

EUR remained well supported on the day despite the stronger Dollar. The ECB left rates unchanged at 2.25%, as expected, with the statement initially sparking a modest dovish reaction after sticking to its data-dependent and meeting-by-meeting approach without offering any forward guidance. However, Lagarde sounded slightly more hawkish during the press conference, noting that some members questioned whether the ECB should have hiked and leaving the door open for September, helping the Euro on the margin. Better-than-expected Eurozone consumer confidence and reports that ECB officials remain ready to hike in September also provided support for the currency.

Data:

  • EU Consumer Confidence Flash (Jul) -15.9 vs. Exp. -16.9 (Prev. -17.7)


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GREAT BRITISH POUND

GBP had mixed performance on the day but ultimately came under pressure from the stronger Dollar and the broader risk backdrop. UK Chancellor John Healey reiterated that the government's first priority is fiscal discipline, although the comments had little impact on Sterling as external drivers remained in control of price action.

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AUSTRALIAN DOLLAR

AUD was well supported for most of the day after a much stronger-than-expected Australian jobs report, but ultimately gave back its gains to close flat as the stronger Dollar and broader risk sentiment weighed later in the session. Employment surged by 76.3k against expectations of 15k, while the unemployment rate held steady at 4.4%, reinforcing expectations that the RBA could still deliver another rate hike. Despite the supportive domestic data, external drivers dominated into the close, limiting further upside.

Data:

  • Australian Employment Change (Jun) 76.3K vs. Exp. 15K (Prev. 40.3K)
  • Australian Full Time Employment Chg (Jun) 29.3K (Prev. 5.2K)
  • Australian Unemployment Rate (Jun) 4.4% vs. Exp. 4.4% (Prev. 4.4%)
  • Australian Participation Rate (Jun) 67.0% vs. Exp. 66.7% (Prev. 66.7%)


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CANADIAN DOLLAR

CAD battled the stronger Dollar throughout the day, with the rally in the oil complex providing solid support and helping the currency keep pace with USD. Domestic data also came in supportive, with retail sales meeting expectations on the monthly print while the ex-autos measure and annual growth both beat forecasts. Despite the stronger retail sales data, oil remained the main driver behind CAD's resilience on the day.

Data:

  • Canadian Retail Sales YoY (May) Y/Y 5.9% vs. Exp. 3.5% (Prev. 3.7%).
  • Canadian Retail Sales MoM Prel (Jun) M/M 0.4% vs. Exp. 0.4% (Prev. 1.0%).
  • Canadian Retail Sales MoM Final (May) M/M 1.0% vs. Exp. 1% (Prev. 0.5%).
  • Canadian Retail Sales Ex Autos MoM (May) M/M 1.2% vs. Exp. 0.4% (Prev. 0.1%).


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NEW ZEALAND DOLLAR

NZD underperformed on the day, weighed by the broader risk backdrop and relative AUD outperformance following the stronger Australian employment report.


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JAPANESE YEN

JPY remained offered on the day, weighed by the lack of any concrete action from the Ministry of Finance despite repeated warnings on FX moves. Finance Minister Katayama reiterated readiness to take decisive action if needed, but the absence of intervention kept the Yen under pressure. Wider US-Japan rate differentials remained the key driver, supporting USD/JPY as the pair pushed to its highest levels since 1986.

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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.