Oil prices climbed about 1% on Wednesday, extending their gains after US President Donald Trump reinstated a naval blockade on all Iranian ports, while Iran's Islamic Revolutionary Guard Corps threatened to shut down "all other export routes serving the United States and its allies," intensifying concerns over global energy supplies.

Trading performance

Brent crude futures rose 69 cents, or 0.8%, to $85.42 a barrel, while US West Texas Intermediate (WTI) crude futures gained 73 cents, or 0.9%, to $80.07 a barrel.

Both benchmarks closed about 2% higher on Tuesday, reaching their highest levels in a month as supply disruptions through the Strait of Hormuz worsened. Before the outbreak of the US-Iran conflict, roughly one-fifth of global oil and liquefied natural gas supplies passed through the strategic waterway.

Middle East developments

In a statement carried by Iran's official IRNA news agency, the Islamic Revolutionary Guard Corps said, "Energy exports in the region will either remain available to everyone or to no one."

Analysts believe Tehran is signaling that it could use its Houthi allies in Yemen to disrupt shipping through the Bab el-Mandeb Strait, potentially opening a new front in its confrontation with the United States and threatening two of the world's most critical energy trade routes.

Fighting between the United States and Iran resumed last week, undermining a fragile ceasefire reached in June after months of conflict.

Early Wednesday, the US military announced a new round of strikes aimed at degrading Iran's capabilities used to target commercial shipping in the Strait of Hormuz.

Speaking in an interview with Fox News, President Donald Trump said he would delay targeting Iran's energy facilities but added, "Eventually, we will target the energy facilities."

Giovanni Staunovo, an analyst at UBS, said the US naval blockade on vessels heading to and from Iranian ports is tightening conditions in the oil market, noting that Iran's crude exports have ranged between 1.5 million and 2 million barrels per day over the past two weeks.

Goldman Sachs estimated that Gulf oil exports had recovered to more than 80% of pre-war levels following the US-Iran memorandum of understanding in June, but fell back below 50% over the past week, equivalent to roughly 11 million barrels per day.

The bank said Brent crude could climb above $110 a barrel in the fourth quarter if the recovery in Gulf exports continues to stall.

Despite the escalation, investors remain cautious about pricing in a significant geopolitical risk premium given the rapid shifts in political and military developments.

Ole Hansen, Head of Commodity Strategy at Saxo Bank, said markets have become more restrained in reacting to dramatic headlines because many of them ultimately fail to translate into concrete action.

In the latest military developments, the Iranian military announced early Wednesday that it had launched drone attacks targeting US positions at Jordan's Azraq Air Base. The US Department of Defense did not immediately comment.

Iran's Revolutionary Guard also claimed it had targeted weapons storage facilities and military installations in Bahrain and Kuwait, although Reuters was unable to independently verify those reports.

The US dollar was little changed on Wednesday after posting its biggest daily decline in nearly two weeks following weaker-than-expected US inflation data, which reduced market expectations for an imminent Federal Reserve rate hike, although concerns remain that higher oil prices could reignite inflationary pressures.

The dollar was steady against the Japanese yen at 162.24, while the euro and the British pound both rose about 0.1% to $1.1428 and $1.3406, respectively.

The US Dollar Index, which measures the greenback against a basket of six major currencies, held steady at 100.9 after falling 0.4% in the previous session, its biggest one-day decline in nearly two weeks, retreating from its highest level since July 2.

Data released on Tuesday showed US inflation slowed to 3.5% year-over-year in June, below expectations of 3.8%, while the headline Consumer Price Index fell 0.4% month-over-month, marking the first monthly decline since April 2020, driven by lower energy prices.

The softer inflation data pushed US Treasury yields lower, with the two-year Treasury yield falling about 9 basis points from a 16-month high as markets scaled back expectations for a near-term interest rate increase.

Chris Turner, Global Head of Markets at ING, said markets had been increasingly convinced that the Federal Reserve would raise interest rates in September, but the latest inflation figures have cast some doubt on that scenario.

He added that the Fed will likely need several more weak inflation readings before ruling out another rate hike this year, noting that expectations for tighter monetary policy are likely to remain in place in the near term, helping to support the dollar, while energy prices remain a key factor in determining its direction.

In testimony before the House Financial Services Committee, Federal Reserve Chair Kevin Warsh reiterated that the central bank "will not tolerate" persistently elevated inflation and pledged to carry out its mandate even if it faces pressure from US President Donald Trump.

According to LSEG data, markets are now pricing in roughly a 65% probability of a rate hike at the September meeting, while the chances of a move in July have fallen to almost zero.

In the Middle East, the escalating confrontation between the United States and Iran continued to fuel inflation concerns after developments pushed oil prices to their highest level in a month. President Donald Trump reinstated a naval blockade on all Iranian ports, while the US military announced a new round of strikes aimed at reducing Iran's capabilities to target commercial shipping in the Strait of Hormuz.

In other currency markets, the Norwegian krone weakened against both the dollar and the euro after Norway's core inflation slowed more than expected in June, easing pressure on the central bank to raise interest rates next month.

Meanwhile, the New Zealand dollar held near a one-month high at US$0.5815, while the Australian dollar edged slightly higher to US$0.6985.

In China, economic growth slowed to 4.3% in the second quarter, marking the weakest pace in more than three years. The yuan briefly climbed to a one-month high on growing expectations that Chinese authorities will introduce additional economic stimulus measures.

Gold prices fell in European trading on Wednesday, resuming the losses that were temporarily halted in the previous session and moving back toward a two-week low, as the inflationary impact of rising oil prices outweighed continued weakness in the US dollar.

Weaker-than-expected US consumer inflation data reduced expectations for additional Federal Reserve rate hikes this year. Investors are now awaiting the June Producer Price Index (PPI) report later today, along with the second day of Federal Reserve Chair Kevin Warsh's semiannual testimony before Congress, for fresh clues on the outlook for monetary policy.

The Price

• Gold prices fell 0.9% to $4,017.47 per ounce, from an opening level of $4,052.98, after reaching an intraday high of $4,062.17.

• Gold settled 1.3% higher on Tuesday, posting its first daily gain in three sessions as bargain buying emerged after prices hit a two-week low of $3,983.64 per ounce.

• In addition to bargain hunting, gold received support after US consumer inflation data came in below expectations.

US Dollar

The US Dollar Index slipped 0.15% on Wednesday, extending its losses for a second consecutive session as the greenback weakened against a basket of major currencies.

US Treasury yields also declined as expectations for a near-term Federal Reserve rate hike eased. Investors are now looking ahead to additional economic data and comments from Fed officials for clearer guidance on the path of monetary policy.

Global Oil Prices

Oil prices rose more than 0.5% on Wednesday, extending gains for a third straight session and approaching the one-month high reached on Tuesday, as military strikes between the United States and Iran continued around the Strait of Hormuz.

Iran conflict developments

• The US naval blockade of Iranian ports officially came into effect, with US forces monitoring vessels entering and leaving Iranian ports.

• The United States carried out fresh military strikes targeting Iranian missile systems and air defenses around the Strait of Hormuz, marking another escalation in the crisis.

• Iran announced new drone attacks targeting US-linked bases and facilities across the region while maintaining a heightened state of military readiness.

• Iranian officials said the United States is mistaken if it believes these actions will force Tehran back to the negotiating table.

• US President Donald Trump issued a stern public warning to Tehran, threatening to destroy all Iranian power plants and key bridges "next week" unless Iran agrees to return immediately to negotiations.

US Interest Rates

• Data released on Tuesday showed US consumer inflation slowed more than expected in June, largely due to lower energy prices.

• Senior Federal Reserve officials welcomed the softer June inflation figures but stressed that additional months of similar data would be needed before concluding that inflationary pressures are genuinely easing.

• Following the data, CME Group's FedWatch Tool showed the probability of the Federal Reserve keeping interest rates unchanged at its July meeting rising from 59% to 86%, while the probability of a 25-basis-point rate hike dropped from 41% to 14%.

• Expectations for no change at the December meeting also increased from 10% to 20%, while the probability of a 25-basis-point hike declined from 90% to 80%.

• Investors now await the release of the June US Producer Price Index later today to reassess the outlook for Federal Reserve policy.

Kevin Warsh

At 2:00 p.m. GMT, Federal Reserve Chair Kevin Warsh will continue his semiannual testimony before the Senate Banking Committee in Washington.

During Tuesday's appearance before the House Financial Services Committee, Warsh pledged a sweeping overhaul of Federal Reserve policy aimed at eliminating what he described as the inflation "tax" imposed on the American people.

Gold outlook

Kelvin Wong, Senior Market Analyst for Asia Pacific at OANDA, said the market is now largely looking past the Consumer Price Index data, viewing it as a lagging indicator. He added that Trump's continued blockade of shipping through the Strait of Hormuz has driven oil prices higher and is weighing on gold.

SPDR Gold Trust

Holdings in the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, increased by 2 metric tons on Tuesday, bringing total holdings to 1,004.45 metric tons, rebounding from 1,002.45 metric tons, the lowest level since July 2.

The euro strengthened against a basket of global currencies during European trading on Wednesday, extending gains against the US dollar for a second consecutive session and moving closer to a two-week high, supported by a weaker US dollar following softer-than-expected US inflation data.

As global oil prices continue to climb, inflationary pressures on European Central Bank policymakers are resurfacing, reinforcing expectations that the ECB could raise interest rates in September.

The Price

• The euro rose about 0.2% against the US dollar to $1.1442, after opening at $1.1420 and touching an intraday low of $1.1417.

• The euro closed Tuesday up 0.35% against the US dollar, recording its first daily gain in three sessions and reaching a two-week high of $1.1462 after weaker-than-expected US inflation data.

US dollar

The US Dollar Index fell 0.15% on Wednesday, extending losses for a second consecutive session as the greenback weakened against a basket of global currencies.

US June inflation data came in below expectations, driven by lower energy prices, signaling easing inflationary pressures on Federal Reserve policymakers.

US Treasury yields declined as expectations for near-term Federal Reserve rate hikes eased, while investors await additional economic data and comments from Fed officials for clearer guidance on the future path of monetary policy.

Later today, the United States will release June Producer Price Index (PPI) data, while Federal Reserve Chair Kevin Warsh will continue his semiannual testimony before the US Congress.

Global oil prices

Oil prices rose more than 0.5% on Wednesday, extending gains for a third consecutive session and approaching the one-month high reached on Tuesday as military clashes between the United States and Iran continued around the Strait of Hormuz.

Iran conflict developments

• The United States officially began enforcing its naval blockade of Iranian ports while monitoring vessels entering and leaving the country.

• US forces carried out fresh strikes targeting Iranian missile systems and air defense positions near the Strait of Hormuz in a further escalation of the conflict.

• Iran announced new drone attacks against US-linked targets and military bases across the region while maintaining a heightened state of military alert.

• Iranian authorities said Washington is mistaken if it believes its actions will force Tehran back to the negotiating table.

• US President Donald Trump issued a public warning to Tehran, threatening to destroy all power stations and key bridges across Iran "next week" unless the country immediately agrees to resume negotiations.

European interest rates

• Amid rising global oil prices, money markets have increased pricing for a 25-basis-point European Central Bank rate hike at the July meeting to above 35%.

• Market pricing for a 25-basis-point ECB rate hike in September has climbed above 95%.

• Investors now await additional eurozone inflation, employment, and wage data to further refine expectations for the ECB's policy outlook.