The U.S. dollar reached its highest weekly level against most peers as the U.S. renewed strikes on Iran, sending geopolitical tensions soaring and oil prices higher. According to The Economic Times, the dollar index traded at 101.18, marking its highest level since July 2. The renewed military action came after the U.S. unleashed a new wave of strikes against Iran on Tuesday and revoked a license allowing the country to sell oil after three tankers were attacked in the Strait of Hormuz. Brent crude was up 2.6% at $76.12 a barrel at the start of Asian trading, extending a rally into a second day as concerns over peace deal stability reemerged. The latest developments have reinforced expectations of interest rate hikes, with the dollar index maintaining its strength as inflation concerns mount.
Gold has been the biggest disappointment among traditional haven assets, dropping 21.2% since the war began according to FactSet data. As reported by Barrons, the unique mechanics of the conflict created market forces that directly countered gold's typical haven benefits. The war sparked a prolonged blockade of the Strait of Hormuz, which controls roughly 20% of the world's petroleum, sending oil prices soaring and pushing up U.S. inflation. The Federal Reserve held interest rates steady rather than cutting as expected for 2026, increasing the opportunity cost of holding non-yielding gold assets. With the US-Iran nuclear deal uncertainty, gold's appeal as a safe haven may continue to face pressure as investors seek higher-yielding alternatives.
Long-dated treasuries, traditionally a safe haven during geopolitical crises, have been hit by the energy crunch and inflation spike. According to Barrons, bond prices fell and the 10-year treasury yield spiked to around 4.49% instead of the typical decline investors expect during crisis periods. The latest data shows the 10-year treasury yield remained near a one-month high of around 4.55% on Wednesday after climbing sharply in the previous session. The energy crunch and rising inflation made investors reluctant to lock money into long-term bonds when inflation was actively rising, leading to a shift toward shorter-duration treasuries where 3-month Treasury bills guaranteed a return of nearly 5% in cash equivalents. With the US-Iran nuclear deal uncertainty, the direction of treasury markets will likely depend on whether a deal appears imminent or if tensions escalate further.
The Utilities Select Sector SPDR Fund (XLU) has fallen 5.4% since the war began, as reported by Barrons. Electric utilities face particular challenges from the Hormuz closure, which has caused spikes in wholesale energy costs, especially gas prices that utilities rely on to fire power plants. Because utilities are highly regulated and cannot immediately raise consumer power bills to cover costs, their profit margins get crushed by fuel price spikes. Additionally, higher interest rates make it more expensive for utilities to refinance their massive corporate debt, cutting directly into bottom-line earnings. With the US-Iran nuclear deal uncertainty, utilities may continue facing pressure as energy costs remain volatile and regulatory constraints limit their ability to pass through higher costs to consumers.
The US Dollar Index's current calm masks a market that is highly sensitive to geopolitical developments, as noted by market analysts. If a nuclear deal appears imminent, the dollar could weaken as risk appetite improves, potentially driving investors toward higher-yielding currencies and commodities. Conversely, a breakdown in talks or an escalation of tensions would likely boost the dollar's safe-haven appeal, pushing the DXY above the 105 resistance level. Traders should monitor official statements from US Secretary of State Antony Blinken and Iranian Foreign Minister Hossein Amir-Abdollahian, as well as reports from international mediators. The next round of talks is expected to take place in Vienna, though no official date has been confirmed. Additionally, the US Energy Information Administration's weekly crude oil inventory report on Wednesday could provide further clues about market expectations regarding potential supply disruptions. Investors are also waiting for the minutes of the Federal Reserve's June meeting for additional insight into the policy outlook.
