Bitcoin fell back below the $64,000 mark on Thursday after failing to close above its 50-day exponential moving average (EMA) near $65,120 in the previous session.

Although institutional demand showed modest improvement, with spot Bitcoin exchange-traded funds (ETFs) recording a second consecutive day of net inflows this week, escalating tensions between the United States and Iran reignited inflation concerns, limiting the positive impact of weaker-than-expected US inflation data on the world's largest cryptocurrency.

Bitcoin lost momentum and traded below $64,200 as the ongoing military escalation between Washington and Tehran raised fresh concerns about potential disruptions to global energy supplies, pushing oil prices higher.

Rising oil prices revive inflation concerns and cap Bitcoin's gains

Weaker-than-expected US Consumer Price Index (CPI) and Producer Price Index (PPI) data for June had supported Bitcoin's recovery earlier this week by reinforcing expectations that the Federal Reserve would keep interest rates unchanged, helping the cryptocurrency climb back to $65,600 on Wednesday.

However, the latest rebound in oil prices revived fears of energy-driven inflation, boosting demand for the US dollar as a safe-haven asset and bringing Bitcoin's recovery to a halt.

Institutional demand, meanwhile, showed only limited improvement during the week.

According to data from SoSoValue, spot Bitcoin ETFs recorded net inflows of $107.80 million on Wednesday, following inflows of $181.08 million the previous day.

Even so, those inflows were not enough to offset Monday's sharp net outflows of $424.66 million, indicating that institutional investors remain cautious despite Bitcoin's recent rebound.

Oil prices edged lower on Thursday as investors continued to assess the implications of escalating tensions between the United States and Iran and the potential risks to oil supplies passing through the Strait of Hormuz.

Brent crude futures fell 27 cents, or 0.32%, to $84.68 a barrel by 10:11 GMT, while US West Texas Intermediate (WTI) crude futures slipped 11 cents, or 0.14%, to $79.49 a barrel. Despite the decline, both benchmarks remained close to their highest levels in a month.

"The market continues to react with remarkable calm," said Ole Hvalbye, market analyst at SEB Research.

"It would make sense for prices to continue rising toward the $90-$95 per barrel range, and possibly return to the $100 mark, because repeated disruptions in the Strait of Hormuz are creating uncertainty over oil flows from the Gulf region," he added.

Ongoing disruptions in the Strait of Hormuz fuel concerns over a wider regional conflict

The latest market moves followed US strikes on Wednesday targeting Iranian coastal defense systems and missile sites after Washington reimposed a naval blockade on Iranian ports. Tehran, meanwhile, threatened to halt additional regional energy exports, declaring that it is engaged in an "existential war" with the United States.

The renewed escalation comes after the collapse of the fragile ceasefire reached in June, reviving fears of a broader regional conflict and disrupting energy flows through the Strait of Hormuz, which handled around one-fifth of global oil and liquefied natural gas trade each day before the war began.

Shipping data showed that only seven vessels passed through the strait on Wednesday, the first day after the United States reinstated its naval blockade on Iran, down from 13 vessels the previous day.

"Markets are likely to remain cautious as they assess the immediate supply risks. So far, despite the military escalation, oil tankers are still transiting the Strait of Hormuz, although in smaller numbers," said Wael Makarem, Senior Market Strategist at Exness.

Iran reiterated on Thursday that the Strait of Hormuz represents a "red line that cannot be crossed," warning that it would target all infrastructure across the Gulf if US President Donald Trump follows through on his threat to attack Iranian infrastructure.

Analysts believe Tehran has hinted at the possibility of using its Houthi allies in Yemen to disrupt shipping through the Bab al-Mandab Strait, potentially opening a new front in the confrontation with Washington and threatening the world's second most important energy shipping route.

Oxford Economics said its base-case scenario is for shipping traffic through the Strait of Hormuz to continue at reduced and volatile levels, leading to intermittent spikes in oil prices and keeping average crude prices above $80 a barrel over the coming quarters.

In a separate development, Ukraine's Security Service announced on Thursday that, in coordination with the Ukrainian Navy, it had targeted two Russian "shadow fleet" tankers in the Black Sea using naval drones.

The US dollar held near a one-month low on Thursday as investors weighed weaker-than-expected US inflation data, which reduced expectations for interest rate hikes, against the risk of another rise in oil prices due to tensions in the Middle East, which could provide support for the currency.

Lower rate hike expectations weigh on the dollar despite ongoing Middle East tensions

US Treasury yields fell on Wednesday after a second consecutive day of inflation data showed that price pressures continued to ease, weakening expectations for further monetary tightening by the Federal Reserve and limiting support for the dollar.

The US economy is generally viewed as less vulnerable to energy price shocks than many other major economies, making the dollar a preferred safe-haven asset when oil prices rise, often at the expense of the euro and the Japanese yen.

Conversely, any diplomatic breakthrough in the Middle East typically weighs on the dollar against those currencies as lower oil prices improve the outlook for energy-importing economies.

Some investors believe the current escalation with Iran is aimed at strengthening the United States' negotiating position and that tensions could eventually ease once Washington secures greater concessions.

"Markets are also aware that President Donald Trump's threats, strong rhetoric, and deadlines are rarely implemented in full," said Jens Magnusson, Chief Economist at SEB.

"When prices rise too far, particularly oil and gasoline prices, he tends to pull back, allowing prices to decline again," he added.

Oil prices fell on Thursday as investors took profits while continuing to assess the impact of the latest wave of US strikes on Iranian military facilities.

The dollar index, which measures the US currency against a basket of six major currencies, held steady at 100.48, close to its lowest level since June 18. The index has fallen around 0.8% over the previous two sessions and is heading for a weekly loss.

Market expectations for a Federal Reserve rate hike at the July meeting fell to 11%, down from 45% at the start of the week, according to federal funds futures data from CME Group.

However, markets still see an approximately even chance of at least one 25-basis-point rate hike at the September meeting.

The euro was little changed at $1.1469 as investors closely monitored European natural gas futures, which climbed to their highest level since March. The increase raised concerns that higher energy costs could weaken the eurozone economy and limit further gains in the single currency.

Sterling also held near a two-month high at $1.354 following the release of economic data, as investors expect the UK's new prime minister to appoint a finance minister committed to fiscal restraint.

In Asia, the Japanese yen remained close to multi-decade lows as markets focused on potential moves by Japan's Government Pension Investment Fund (GPIF). Japanese Finance Minister Katsunobu Kato said last week that the government wants to achieve a "significant increase" in the fund's investment in domestic assets.

The dollar rose 0.10% against the yen to 162.00, after reaching a multi-decade high of 162.84 earlier this month.

Geoff Yu, Senior EMEA Macro Strategist at BNY, said discussions surrounding the GPIF's strategy indicate that capital allocation by the public sector has become an active economic policy tool rather than merely a long-term objective.

He added that investors should view the shift as a structural, multi-year trend whose impact will extend beyond Japan.

Analysts said the GPIF has the greatest capacity among Japanese investors to influence the foreign exchange market. The fund reviews its investment strategy every five years, with the latest review completed in 2025, while retaining the ability to adjust its asset allocation within its target ranges.

In other currency markets, the Australian and New Zealand dollars each fell around 0.1%, with the Australian dollar trading at US$0.6995 and the New Zealand dollar at US$0.5842.

Gold prices fell in European trading on Thursday, heading for their first loss in three sessions, pressured by a rebound in the US dollar against a basket of global currencies as military tensions between the United States and Iran continued to intensify.

US inflation data released this week reduced expectations that the Federal Reserve will raise interest rates this year, while investors await further evidence on the future path of US monetary policy.

The Price

• Gold prices fell 0.9% to $4,023.06 an ounce, from the opening level of $4,060.45, after reaching an intraday high of $4,066.87.

• At Wednesday's settlement, gold prices rose 0.2%, posting their second consecutive daily gain as the metal continued to recover from a two-week low of $3,983.64 an ounce.

• In addition to bargain buying, gold received support from a weaker US dollar following the release of disappointing economic data in the United States.

US dollar

The dollar index rose 0.1% on Thursday as it attempted to recover from a one-month low, reflecting renewed strength in the US currency against a basket of major and minor currencies.

Demand for the dollar as a safe-haven asset increased as military strikes between the United States and Iran continued to escalate, while reduced shipping traffic through the Strait of Hormuz intensified concerns over possible disruptions to global oil supplies.

Latest developments in the Iran conflict

• The United States launched a new wave of airstrikes targeting Iranian coastal defense sites and missile launchers.

• Iran described the current confrontation as an "existential war" and said it would continue responding to US operations, while threatening to broaden measures that could affect regional energy exports.

• The US fleet, consisting of 20 warships and hundreds of fighter aircraft in the region, continues to intercept vessels traveling to and from Iranian ports.

• The number of ships passing through the Strait of Hormuz fell to just seven, down from 13 the previous day, with no supertankers or liquefied natural gas carriers transiting the waterway.

• US President Donald Trump said Iran "wants to reach a settlement," but stressed that negotiations can only resume if Tehran changes its behavior.

• Iran, meanwhile, maintains that it will not return to any agreements while US military operations continue.

US interest rates

• Data released this week showed that both consumer and producer prices in the United States slowed more than expected in June as energy prices declined.

• Senior Federal Reserve officials welcomed the softer June inflation readings but said more such reports would be needed before concluding that price pressures are genuinely easing.

• Following the data, CME Group's FedWatch tool showed that the probability of the Federal Reserve leaving interest rates unchanged at its July meeting rose from 59% to 90%, while the probability of a 25-basis-point rate hike fell from 41% to 10%.

• The probability of the Fed keeping rates unchanged at its December meeting also increased from 10% to 25%, while the probability of a 25-basis-point rate hike declined from 90% to 75%.

• Investors continue to monitor incoming US economic data and comments from Federal Reserve officials to reassess those expectations.

Gold outlook

Jigar Trivedi, Senior Research Analyst at IndusInd Securities, said gold is declining as continued attacks in the Middle East drive oil prices sharply higher this week, keeping inflation concerns alive.

Trivedi added that June's inflation figures did not reflect the impact of the latest escalation in the US-Iran conflict, as the temporary peace agreement reached last month has effectively collapsed.

SPDR fund

Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell by 2.57 metric tons on Wednesday to 1,001.88 metric tons, the lowest level since July 2.