The U.S. dollar headed toward its first weekly gain in a month on Thursday as tensions between Iran and the United States escalated amid the conflict in the Middle East. Stalled peace talks pushed oil prices back above $100 per barrel, dampening investor optimism.

Tehran heightened the standoff by seizing two ships in the Strait of Hormuz on Wednesday. This followed President Donald Trump’s decision to extend the ceasefire with Iran indefinitely without any clear signs that peace negotiations would resume.

The two sides remain deadlocked over the ceasefire terms, mutual blockades, the nuclear file, and control of the Strait. This has kept the strategic waterway nearly closed, triggering a shock in energy markets that continues to weigh on the global economy.

Jeremy Stretch, head of G10 FX strategy at CIBC Capital Markets, noted that the "path of least resistance at the moment is a slight increase in dollar holdings, as the peace premium that had returned to markets fades."

Currency Performance

- The Euro fell below $1.17, touching its lowest level since April 13 earlier in the day. It is on track for a weekly decline of 0.7%, its first drop in four weeks.

- The British pound slipped 0.1% to $1.3488, disregarding data showing that consumers in Britain have already begun cutting fuel spending due to the early effects of the conflict involving the U.S. and Israel against Iran.

- The Japanese yen weakened slightly to 159.73 per dollar, nearing the 160 level—a threshold many market participants view as a potential trigger for official intervention. The Bank of Japan is expected to hold interest rates steady next week while signaling a possible hike in June.

Dollar Index and Market Sentiment

The U.S. dollar index, which tracks the currency against six major rivals, rose 0.17% to 98.78 points. It is set for a weekly gain of approximately 0.4%, its first in a month.

While the dollar benefited significantly from the initial volatility when the war broke out in March, hopes for a peace deal earlier this month had pushed investors toward higher-risk currencies, erasing much of those gains. However, the nearly two-month-old conflict has caused a sharp spike in fuel prices and a decline in consumer confidence, effectively eliminating expectations for interest rate cuts this year.

Regional Financial Developments

On Tuesday, President Trump mentioned that a currency swap agreement with the United Arab Emirates is under consideration. This followed a Wall Street Journal report stating that the Governor of the UAE Central Bank proposed the idea to the U.S. Treasury Secretary and Federal Reserve officials in Washington last week.

"In times of instability, questions arise regarding access to financing and liquidity," Stretch added. "These countries are also affected by declining revenue flows, making these precautionary measures justified."

Interest Rate Outlook

Markets currently show that traders see only a 25% chance of a Federal Reserve rate cut this year, while two rate hikes from the European Central Bank are being priced in for 2026.

Michael Brown, market strategist at Pepperstone, commented: "My view remains that the U.S. economy is the most capable of withstanding this shock, especially if other central banks, like the ECB, decide to proceed with monetary tightening." He added that any dip in the dollar remains a buying opportunity, particularly as the index hesitates to drop below the 98 level.

Investors are now turning their attention to weekly U.S. jobless claims and Purchasing Managers' Index (PMI) data due later on Thursday to gauge whether rising energy costs are beginning to impact the broader economy.

Gold prices fell in the European market on Thursday, resuming the losses that briefly paused yesterday. The metal traded below the $4,700 per ounce threshold, pressured by the rise of the U.S. dollar and oil prices amid escalating tensions between the United States and Iran in the Strait of Hormuz, despite the extension of the ceasefire agreement.

Although gasoline prices in the United States are rising and inflationary pressures are mounting on Federal Reserve policymakers, the probability of a U.S. interest rate hike this April remains very low.

Price Overview

- Gold Prices Today: Gold prices fell by 1.0% to ($4,692.68), from an opening level of ($4,739.32), while recording a high of ($4,753.79).

- At the close of trading on Wednesday, gold prices achieved a gain of more than 0.4%, marking their first increase in three days as part of a recovery from a one-week low of $4,668.74 per ounce.

The U.S. Dollar

The dollar index rose by more than 0.1% on Thursday, extending its gains for the third consecutive session and reaching its highest level in over a week. This reflects the continued ascent of the American currency against a basket of global currencies.

This rise comes as investors focus on buying the U.S. dollar as a safe haven, as the United States and Iran remain at odds over the ceasefire, the blockade, nuclear files, and control of the Strait.

These disputes keep the strategic waterway effectively closed and threaten an energy sector shock that could harm global economies.

Analysis and Insights

Skye Masters, head of markets research at National Australia Bank, stated: "Despite Trump's extension of the ceasefire, tensions remain high with Iran's refusal to reopen the Strait of Hormuz and the continued U.S. naval blockade, increasing the risk of prolonged supply disruptions."

Masters added that extreme economic and trade risks are currently undervalued, and inflationary pressures are expected to persist until the end of the year.

Iranian War Updates

- The United States intercepted three Iranian oil tankers in Asian waters.

- Iran seized two cargo ships in the Strait of Hormuz on Wednesday.

- Maritime traffic in the Strait of Hormuz is nearly at a standstill.

- The United Kingdom announced that two vessels were attacked in the Strait of Hormuz.

- Trump hinted at the possibility of a second round of negotiations in Pakistan tomorrow, Friday.

- Iranian Parliament Speaker and chief negotiator Mohammad Bagher Ghalibaf stated that a full ceasefire only makes sense if the blockade is lifted.

Global Oil Prices

Global oil prices rose by more than 4% on Thursday, extending gains for the fourth consecutive day and reaching a two-week high. This follows mounting fears of energy supply disruptions from the Arabian Gulf region as the Strait of Hormuz remains closed to oil tankers.

The rise in global oil prices renews fears of accelerating inflation, which could push global central banks to raise interest rates in the near term—a sharp pivot from pre-war expectations of rate cuts or long-term holds.

U.S. Interest Rates

- Kevin Warsh, the nominee for a senior Federal Reserve role, stated on Tuesday that he has made no promises to Trump regarding interest rate cuts.

- According to the CME Group's FedWatch tool: the probability of keeping U.S. interest rates unchanged at the April meeting is currently stable at 99%, while the probability of a 25-basis-point hike stands at 1%.

- Investors are closely monitoring the release of further economic data from the United States to re-price these probabilities.

Gold Performance Expectations

Tim Waterer, chief market analyst at KCM Trade, said: "The return of Brent crude prices to high levels keeps inflation fears at the forefront of attention and weakens gold's position today."

Waterer added: "Investors fear that the current 'ceasefire with a continued blockade' status quo could last for months, turning a short-term sharp rise into a long-term inflationary burden, which would negatively impact gold yields."

SPDR Fund

Gold holdings at the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, decreased by approximately 8.85 metric tons on Wednesday. The total fell to 1,050.91 metric tons, its lowest level since April 14.

The Euro declined in the European market on Thursday against a basket of global currencies, deepening its losses for the third consecutive day against the U.S. dollar. It reached its lowest level in ten days as investors focused on purchasing the American currency as the preferred alternative investment amid escalating tensions between the United States and Iran in the Strait of Hormuz, with both sides exchanging control over ships and oil tankers.

The current rise in global oil prices increases indications of growing inflationary pressures on monetary policymakers at the European Central Bank (ECB) and boosts the probability of European interest rate hikes this year. To re-price these probabilities, traders await the release of key European sector data for April later today.

Price Overview

- Euro Exchange Rate Today: The Euro fell against the dollar by more than 0.1% to ($1.1692), the lowest since April 13, from today’s opening price of ($1.1705), while reaching a high of ($1.1714).

- The Euro ended Wednesday's trading down 0.3% against the dollar, its second consecutive daily loss, due to escalating geopolitical tensions in the Middle East.

The U.S. Dollar

The dollar index rose by more than 0.1% on Thursday, extending its gains for the third consecutive session and recording its highest level in over a week. This reflects the continued rise of the American currency against a basket of global currencies.

This ascent comes as investors focus on buying the U.S. dollar as a safe haven, as the United States and Iran remain at odds over the ceasefire, the blockade, nuclear files, and control of the Strait.

These disputes keep the strategic waterway effectively closed and threaten an energy sector shock that could damage global economies.

Skye Masters, head of markets research at National Australia Bank, stated: "Despite Trump's extension of the ceasefire, tensions remain high with Iran's refusal to reopen the Strait of Hormuz and the continued U.S. naval blockade, increasing the risk of prolonged supply disruptions."

Masters added that extreme economic and trade risks are undervalued, and inflationary pressures will persist until the end of the year.

Iranian War Updates

- The United States intercepts three Iranian oil tankers in Asian waters.

- Iran seizes two cargo ships in the Strait of Hormuz on Wednesday.

- Navigation in the Strait of Hormuz is nearly at a standstill.

- The United Kingdom announced that two vessels were attacked in the Strait of Hormuz.

- Trump hints at the possibility of a second round of negotiations in Pakistan tomorrow, Friday.

- Iranian Parliament Speaker and chief negotiator Mohammad Bagher Ghalibaf stated that a full ceasefire would only be logical if the blockade is lifted.

Global Oil Prices

Global oil prices rose by more than 4% on Thursday, extending gains for the fourth consecutive day and reaching a two-week high. This comes amid mounting fears of energy supply disruptions from the Arabian Gulf region as the Strait of Hormuz remains closed to oil tankers.

Undoubtedly, the rise in global oil prices renews fears of accelerating inflation, which may push global central banks to raise interest rates in the near term—a sharp shift from pre-war expectations of cutting or holding rates steady for a long period.

European Interest Rates

- With the rise in global oil prices, money market pricing for the probability of the ECB raising European interest rates by 25 basis points in April increased from 20% to 30%.

- To re-price these probabilities, investors await the release of key sector data for the European economy later today.

- ECB President Christine Lagarde stated: The bank is prepared to raise interest rates even if the expected rise in inflation is short-term.

- Sources told Reuters that the ECB is likely to begin discussing interest rate hikes during this month's meeting.

The Japanese yen declined in the Asian market on Thursday against a basket of major and minor currencies, deepening its losses for the fourth consecutive day against the U.S. dollar. It reached its lowest level in nearly two weeks as investors focused on buying the American currency as the preferred alternative investment amid escalating tensions between the United States and Iran in the Strait of Hormuz, where both sides have exchanged control over ships and oil tankers.

Despite the current rise in global oil prices, the probability of the Bank of Japan (BoJ) raising interest rates during its April meeting remains weak. Most speculation suggests the bank will abandon its hawkish stance due to risks associated with the repercussions of the Iranian war.

Price Overview

- Japanese Yen Exchange Rate Today: The dollar rose against the yen by 0.15% to (159.68¥), the highest since April 13, from today’s opening price of (159.44¥), and recorded a low of (159.30¥).

- The yen ended Wednesday's trading down by 0.1% against the dollar, its third consecutive daily loss, due to escalating tensions between the United States and Iran.

The U.S. Dollar

The dollar index rose by more than 0.1% on Thursday, extending its gains for the third consecutive session and reaching its highest level in over a week. This reflects the continued rise of the American currency against a basket of global currencies.

This ascent comes as investors focus on buying the U.S. dollar as a safe haven, as the United States and Iran remain at odds over the ceasefire, the blockade, nuclear files, and control of the Strait.

These disputes keep the strategic waterway effectively closed and threaten an energy sector shock that could damage global economies.

Skye Masters, head of markets research at National Australia Bank, stated: "Despite Trump's extension of the ceasefire, tensions remain high with Iran's refusal to reopen the Strait of Hormuz and the continued U.S. naval blockade, increasing the risk of prolonged supply disruptions."

Masters added that extreme economic and trade risks are undervalued, and inflationary pressures will persist until the end of the year.

Iranian War Updates

- The United States intercepts three Iranian oil tankers in Asian waters.

- Iran seizes two cargo ships in the Strait of Hormuz on Wednesday.

- Navigation in the Strait of Hormuz is nearly at a standstill.

- The United Kingdom announced that two vessels were attacked in the Strait of Hormuz.

- Trump hints at the possibility of a second round of negotiations in Pakistan tomorrow, Friday.

- Iranian Parliament Speaker and chief negotiator Mohammad Bagher Ghalibaf stated that a full ceasefire would only be logical if the blockade is lifted.

Global Oil Prices

Global oil prices rose by more than 4% on Thursday, extending gains for the fourth consecutive day and reaching a two-week high. This comes amid mounting fears of energy supply disruptions from the Arabian Gulf region as the Strait of Hormuz remains closed to oil tankers.

Undoubtedly, the rise in global oil prices renews fears of accelerating inflation, which may push global central banks to raise interest rates in the near term—a sharp shift from pre-war expectations of cutting or holding rates steady for a long period.

Japanese Interest Rates

- The Bank of Japan is expected to abandon its hawkish stance during its meeting next week, despite keeping interest rates steady.

- Governor Kazuo Ueda has recently refrained from pledging to raise interest rates in April, given the war's impact on economic projections.

- Market pricing for the probability of the Bank of Japan raising interest rates by a quarter percentage point in April is currently stable around 10%.

- To re-price these probabilities, investors await further data on inflation, unemployment, and wages in Japan.