Renewed fighting between the United States and Iran has placed the Strait of Hormuz back at the centre of global financial markets.
The United States conducted additional strikes on Iranian military targets, while Iran responded with attacks across the Gulf. Iran claimed that it had closed the Strait of Hormuz, but the United States maintained that the waterway remained open.
Commercial shipping data showed that traffic had slowed sharply, regardless of the disputed claims. This raised fresh concerns about oil supply, global inflation and economic growth just before several major economic releases.
Markets must now assess two connected risks: whether the conflict could disrupt energy supplies and whether higher oil prices could keep global interest rates elevated.
Key Market Takeaways
- Renewed U.S.–Iran strikes have increased uncertainty around the Strait of Hormuz.
- Commercial shipping through the waterway fell to a five-week low.
- Oil prices rose sharply as markets considered the possibility of further supply disruption.
- The U.S. dollar and government bond yields strengthened, while global equity markets weakened.
- U.S. inflation data and the Bank of Canada decision remain major scheduled events this week.
- USD/CAD, gold, oil, stock indices and Bitcoin may be sensitive to both economic data and geopolitical headlines.
What Happened in the Markets Last Week?
U.S. services activity continued to grow
The U.S. ISM Services PMI fell to 54.0 in June from 54.5 in May.
PMI means Purchasing Managers’ Index. It is a survey used to measure business activity. A reading above 50 generally indicates that the sector is expanding.
The result showed that the large U.S. services sector was still growing, although at a slightly slower pace. Employment within the survey returned to expansion after several months of contraction.
This helped support the view that the U.S. economy remained resilient despite elevated interest rates and geopolitical uncertainty.
Federal Reserve minutes kept inflation concerns active
Minutes from the Federal Reserve’s June meeting showed that policymakers remained concerned about inflation.
The Federal Reserve, or Fed, is the U.S. central bank. It uses interest rates to support stable prices and sustainable economic growth.
Higher energy costs remain an important risk because they can increase transportation, manufacturing and household expenses. Persistent inflation may make the Fed more cautious about lowering interest rates.
The dollar and U.S. Treasury yields remained sensitive to changing expectations about future Fed policy.
New Zealand raised its interest rate
The Reserve Bank of New Zealand increased its Official Cash Rate by 25 basis points to 2.50%.
A basis point equals 0.01 percentage point. Therefore, 25 basis points equals 0.25 percentage point.
The central bank said the increase was intended to help return inflation toward its target. The decision supported the New Zealand dollar because higher interest rates can make a currency more attractive to investors seeking yield.
Canadian employment exceeded expectations
Canada added 18,200 jobs in June, while its unemployment rate declined to 6.5%.
The result was stronger than economists had expected and helped the Canadian dollar record its first weekly gain in six weeks.
The report also reduced immediate concerns about Canada’s labour market before the Bank of Canada’s July policy decision.
China reported higher consumer and producer prices
China’s Consumer Price Index increased 1.0% from a year earlier in June.
The Consumer Price Index, or CPI, measures changes in prices paid by consumers.
China’s Producer Price Index rose 4.1% annually. The Producer Price Index, or PPI, measures changes in prices received by producers and can provide information about business-level cost pressures.
Chinese economic conditions can affect the Australian dollar, New Zealand dollar, commodities and Asian equity markets because China is a major consumer of raw materials and an important global trading partner.
Breaking Update: U.S.–Iran Fighting Returns to the Forefront
The United States carried out additional military strikes against Iranian air-defence systems, radar sites, missile facilities, drone equipment and naval assets.
Iran retaliated against locations in Bahrain, Kuwait and other Gulf states hosting U.S. forces.
The fighting has centred increasingly on control and access to the Strait of Hormuz, one of the world’s most important energy routes. Roughly one-fifth of global oil supplies passed through the Strait before the current conflict.
Iran said the waterway was closed, while the United States said it remained open and continued assisting vessels through an alternative route near Oman.
The most accurate description is therefore:
The Strait’s legal and operational status is disputed, but commercial traffic has been severely restricted.
Only six vessels crossed the Strait on Sunday, the lowest number in five weeks. No liquefied natural gas tankers were visible entering the waterway during the weekend, according to ship-tracking data.
How Did Markets React?
Oil prices rose
Brent crude rose approximately 4.1% to $79.11 per barrel during early trading on July 13. U.S. crude also gained around 4.1%.
Oil prices may remain sensitive to:
- Further attacks on commercial vessels
- Changes in tanker traffic
- U.S. military escorts
- Statements from Iran and the United States
- Progress or failure in diplomatic negotiations
Higher oil prices can increase inflation because energy affects transportation, production and consumer costs.
The U.S. dollar strengthened
The dollar gained as investors sought relatively defensive assets and reconsidered the possibility of higher U.S. interest rates.
If oil prices remain elevated, markets may expect inflation to stay higher for longer. This could make the Federal Reserve more cautious about reducing borrowing costs.
Global stock markets weakened
Asian stock markets declined, while U.S. and European equity futures also moved lower.
The conflict may create several pressures for companies:
- Higher energy and transport costs
- Reduced consumer spending
- Lower profit margins
- Supply-chain disruption
- Greater uncertainty about inflation and interest rates
Technology shares may be particularly sensitive because their valuations often react strongly to changes in bond yields.
Gold declined despite the conflict
Gold fell as rising U.S. bond yields outweighed some demand for defensive assets.
Gold does not pay interest. When government bond yields increase, interest-paying assets can become relatively more attractive.
However, gold may continue to respond to both geopolitical developments and changes in the U.S. dollar.
What Should Markets Watch This Week?
Tuesday: U.S. CPI and Federal Reserve testimony
The United States releases its June CPI report on Tuesday.
Markets may focus on whether consumer inflation is beginning to ease or whether energy, housing and service costs remain elevated.
Federal Reserve Chair Kevin Warsh is also scheduled to appear before Congress. His comments may provide more information about how the Fed views inflation, economic growth and Middle East-related energy risks.
The dollar, gold, Bitcoin, Treasury yields and major U.S. indices may react.
China is also expected to release June trade data, which may affect the yuan, Australian dollar and Asian markets.
Wednesday: U.S. PPI, China GDP and Bank of Canada
Wednesday contains several major events.
The United States releases PPI, which may show whether inflation pressure is continuing at the producer level.
China publishes second-quarter GDP. GDP means Gross Domestic Product and measures the value of goods and services produced by an economy.
The Bank of Canada also announces its interest-rate decision and publishes a new Monetary Policy Report.
The Canadian policy rate currently stands at 2.25%. Economists surveyed before the decision broadly expected the central bank to leave it unchanged, but renewed oil volatility may affect its inflation outlook.
Thursday: U.S. retail sales and UK GDP
U.S. retail sales measure spending at stores, online retailers, restaurants and other consumer businesses.
Strong spending may indicate that the U.S. economy remains resilient. Weak spending may raise concerns about slower growth.
The United Kingdom also publishes its monthly GDP estimate. The result may affect the British pound and expectations for Bank of England policy.
Friday: Eurozone inflation
Eurostat releases its final estimate of June inflation on Friday.
The earlier flash estimate showed annual eurozone inflation slowing to 2.8% from 3.2%.
The final result may affect the euro if it changes expectations about future European Central Bank interest rates.
Which Markets May Be Most Sensitive?
USD/CAD
USD/CAD may receive particular attention because it is exposed to three major drivers:
- U.S. inflation data
- The Bank of Canada decision
- Changes in oil prices
Canada is a major oil exporter. Higher oil prices can sometimes support the Canadian dollar, but the wider effect depends on global risk sentiment and Bank of Canada expectations.
Gold
Gold may face opposing forces.
Geopolitical uncertainty may support defensive demand, while higher Treasury yields and a stronger dollar may create pressure.
Major stock indices
The S&P 500, Nasdaq, Nikkei and European indices may respond to oil prices, bond yields, company earnings and developments in the Gulf.
Energy companies may react differently from airlines, transport businesses and energy-intensive manufacturers.
Bitcoin and major cryptocurrencies
Bitcoin may respond to changes in global liquidity, the U.S. dollar and overall investor risk appetite.
Crypto assets can experience increased volatility when markets rapidly reduce exposure to higher-risk investments.
⚠️ Disclaimer
This article is for informational and educational purposes only and does not constitute financial advice. Trading involves risk, and readers should conduct their own analysis or consult a qualified professional before making financial decisions.
