The US dollar traded little changed on Monday as investors remained cautious amid uncertainty surrounding the evolving conflict in the Middle East, while sterling advanced as Andy Burnham prepared to succeed Keir Starmer as the United Kingdom's prime minister.

The dollar index, which measures the US currency against a basket of six major peers, slipped 0.1% to 100.72.

Markets remained focused on the ongoing exchange of military strikes between the United States and Iran following the collapse of a temporary ceasefire reached last month. The renewed conflict has intensified tensions over control of the Strait of Hormuz, disrupting energy supplies and fueling concerns over higher global inflation.

Nick Rees, Head of Macro Research at Monex Europe, said markets appeared to have become more comfortable with the range of risks they needed to price in.

"Unless something unexpected catches investors off guard, we are unlikely to see major volatility driven by the Middle East," Rees said.

"It will remain a source of concern and keep markets cautious, but we are probably returning to the environment we saw in May, when volatility gradually eased because there was no clear conviction about the market's next direction."

Brent crude futures were little changed at $88.16 a barrel after climbing above $90 earlier in the session.

Focus shifts to Britain's next finance minister

The euro was steady at $1.1441, while sterling rose 0.13% to $1.3470 as Andy Burnham moved closer to taking office as Britain's next prime minister.

Investors are paying close attention to Burnham's choice of finance minister, given the challenging fiscal position facing the UK.

British assets received support last week after reports suggested the role could go to Shabana Mahmood, who is viewed as a centrist, rather than a candidate with a more left-leaning policy agenda.

Chris Turner, Global Head of Markets at ING, said in a note that while sterling could continue to benefit from early optimism surrounding the new government, the UK's tight fiscal position means the administration may ultimately have to raise taxes if it intends to improve public services such as social care.

In other currency markets, the US dollar fell 0.17% against the offshore Chinese yuan to 6.7663 after the People's Bank of China left its benchmark lending rates unchanged for a 14th consecutive month, in line with market expectations.

Against the Japanese yen, the dollar was little changed at ¥162.34 as trading volumes remained subdued due to the Marine Day holiday in Japan.

Markets expect Fed to keep rates unchanged

Markets continue to expect the Federal Reserve to leave interest rates unchanged at its next meeting on July 29.

Fed funds futures currently imply an 85.6% probability that rates will remain on hold, up from 61.5% a month ago, according to the CME FedWatch Tool.

Meanwhile, Cleveland Federal Reserve President Beth Hammack joined a growing number of policymakers on Friday arguing that interest rates may need to rise further to contain persistent inflation.

Her comments set the stage for what could be a closely watched policy debate at the Fed's upcoming meeting, with the possibility of differing views emerging during Kevin Warsh's second meeting as Federal Reserve Chair.

Gold prices declined in European trading on Monday, resuming losses after Friday's rebound and moving back toward a two-week low as a stronger US dollar and rising global oil prices pressured the precious metal amid escalating military strikes between the United States and Iran.

As the conflict intensified, Brent crude climbed above $90 a barrel, fueling concerns over inflation after several Federal Reserve policymakers signaled that further interest rate hikes may be needed to contain price pressures.

The Price

• Spot gold fell 0.9% to $3,982.77 an ounce after opening at $4,017.45 and reaching an intraday high of $4,030.85.

• Gold settled more than 1% higher on Friday after earlier touching a two-week low of $3,959.72 an ounce.

• The precious metal lost 2.5% last week, posting its second consecutive weekly decline as military tensions between the United States and Iran escalated.

US dollar

The dollar index rose around 0.2% on Monday, extending gains for a third straight session and reflecting continued strength in the US currency against a basket of global currencies.

A stronger US dollar makes dollar-denominated gold more expensive for holders of other currencies, reducing its appeal.

Investors continue to favor the dollar as a safe-haven asset as military strikes between the United States and Iran intensify and shipping traffic through the Strait of Hormuz declines.

Global oil prices

Oil prices climbed around 3% on Monday, extending gains for a second consecutive session and reaching their highest level in six weeks as Middle East tensions intensified and Iran threatened to halt all traffic through the Strait of Hormuz.

Higher oil prices are renewing concerns over accelerating inflation, potentially prompting central banks to raise interest rates in the near term.

Latest developments in the Iran conflict

• The United States launched a fresh wave of airstrikes against targets inside Iran for a ninth consecutive day.

• The US strikes targeted military sites linked to Iran's missile and defence capabilities in an effort to weaken Tehran's ability to control the Strait of Hormuz.

• Iran's Revolutionary Guard launched coordinated retaliatory attacks using ballistic missiles and drones against military bases hosting US forces across the region.

• Iran said that not "a single drop" of oil or gas would pass through the Strait of Hormuz if US military operations continued, escalating threats surrounding one of the world's most important energy routes.

• Shipping traffic through the Strait of Hormuz declined sharply as security risks, inspections, and reciprocal attacks continued.

• The US Navy said it had intercepted and rerouted six commercial vessels and disabled a seventh as part of efforts to enforce a strict naval blockade on Iranian ports and isolate the country's coastline.

US interest rates

• Cleveland Federal Reserve President Beth Hammack joined a growing number of policymakers arguing that higher interest rates may be necessary to bring persistent inflation under control.

• According to the CME FedWatch Tool, markets currently price an 86% probability that the Federal Reserve will leave interest rates unchanged at its July meeting, with a 14% chance of a 25-basis-point rate hike.

• For the December meeting, markets assign a 20% probability of rates remaining unchanged and an 80% chance of a 25-basis-point increase.

• Investors are closely watching upcoming US economic data to reassess those expectations.

Gold outlook

Kelvin Wong, Senior Market Analyst for Asia Pacific at OANDA, said military developments over the weekend had increased the risk of the conflict escalating into a broader confrontation between the United States and Iran, potentially creating further headwinds for gold.

"If current stagflation concerns become more deeply embedded in markets, the opportunity cost of holding the precious metal will rise," Wong said.

Over the longer term, Wong said he remains cautious on gold and is watching the key support level at $3,886. A break below that level could trigger a further decline toward $3,500 an ounce.

SPDR Gold Trust

Holdings in the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell by 2.86 metric tons on Friday to 999.02 metric tons, the lowest level since September 25, 2025.

The euro extended its decline against the US dollar in European trading on Monday, falling for a third consecutive session as demand for the greenback remained strong amid mounting concerns over the escalating conflict between the United States and Iran.

Rising global oil prices at the start of the week renewed inflationary pressures on European Central Bank policymakers, raising concerns that inflation across the eurozone could accelerate once again.

The European Central Bank is scheduled to meet on Wednesday and Thursday for its fifth monetary policy meeting of 2026, with markets overwhelmingly expecting interest rates to remain unchanged.

The Price

• The euro fell around 0.2% against the dollar to $1.1424 after opening at $1.1438 and reaching an intraday high of $1.1444.

• The euro ended Friday down less than 0.1% against the dollar, marking its second consecutive daily decline amid renewed concerns over the Iran conflict.

• The single currency gained 0.2% against the dollar last week, posting its second weekly advance in the past three weeks as it recovered from lower levels.

US dollar

The dollar index rose around 0.2% on Monday, extending gains for a third straight session and reflecting continued strength in the US currency against a basket of major and minor currencies.

Investors continue to favor the dollar as a safe-haven asset as military strikes between the United States and Iran intensify and shipping traffic through the Strait of Hormuz declines.

Global oil prices

Oil prices climbed around 3% on Monday, extending gains for a second consecutive session and reaching their highest level in six weeks amid escalating Middle East tensions and Iranian threats to halt all traffic through the Strait of Hormuz.

The rise in global oil prices is renewing concerns over accelerating inflation, potentially prompting central banks to raise interest rates in the near term, a sharp reversal from pre-war expectations that rates would remain unchanged or be cut for an extended period.

Latest developments in the Iran conflict

• The United States launched a fresh wave of airstrikes against targets inside Iran for a ninth consecutive day.

• The US strikes targeted military sites linked to Iran's missile and defence capabilities in an effort to weaken Tehran's ability to control the Strait of Hormuz.

• Iran's Revolutionary Guard launched coordinated retaliatory attacks using ballistic missiles and drones against military bases hosting US forces across the region.

• Iran said that not "a single drop" of oil or gas would pass through the Strait of Hormuz if US military operations continued, escalating threats surrounding one of the world's most important energy routes.

• Shipping traffic through the Strait of Hormuz declined sharply as security risks, inspections, and reciprocal attacks continued.

• The US Navy said it had intercepted and rerouted six commercial vessels and disabled a seventh as part of efforts to enforce a strict naval blockade on Iranian ports and isolate the country's coastline.

European interest rates

• Amid rising global oil prices, money markets increased the probability of the European Central Bank raising interest rates by 25 basis points in September to above 95%.

• Investors are awaiting additional eurozone data on inflation, unemployment, and wages to reassess those expectations.

• The European Central Bank will meet on Wednesday and Thursday this week for its fifth monetary policy meeting of 2026, with markets almost fully pricing in no change to interest rates.

The Japanese yen fell against a basket of major and minor currencies in Asian trading on Monday, resuming losses against the US dollar after a brief pause on Friday and touching a two-week low.

The currency is moving closer to its weakest level in 40 years as investors increasingly turn to the US dollar as the preferred safe-haven asset amid escalating military strikes between the United States and Iran.

Global oil prices surged to their highest level in six weeks as supplies through the Strait of Hormuz were disrupted, renewing concerns over mounting inflationary pressures on the Bank of Japan and strengthening expectations of a Japanese interest rate hike in October.

The Price

• The dollar rose 0.15% against the yen to ¥162.58, its highest level since July 9, after opening at ¥162.36 and touching a low of ¥162.31.

• The yen ended Friday up less than 0.1% against the dollar, marking its third gain in four sessions amid speculation that Japanese authorities could intervene in the currency market.

• The yen lost 0.45% against the dollar last week, posting its second consecutive weekly decline as military confrontation between the United States and Iran intensified.

Japanese authorities

The yen has returned to the spotlight after moving close to its weakest levels against the US dollar since 1986, raising expectations that Japanese authorities could intervene to protect the currency from excessive depreciation.

US dollar

The dollar index rose around 0.2% on Monday, extending gains for a third consecutive session and reflecting continued strength in the US currency against a basket of global currencies.

Investors are increasingly buying the dollar as a safe-haven asset as military strikes between the United States and Iran continue to escalate, while shipping traffic through the Strait of Hormuz declines.

Global oil prices

Oil prices rose around 3% on Monday, extending gains for a second consecutive session and reaching their highest level in six weeks amid mounting risks in the Middle East and Iranian threats to halt all traffic through the Strait of Hormuz.

The rise in global oil prices is renewing fears of accelerating inflation, which could prompt central banks worldwide to raise interest rates in the near term, marking a sharp reversal from pre-war expectations that rates would either be cut or held steady for an extended period.

Latest developments in the Iran conflict

• The United States launched a fresh wave of airstrikes against targets inside Iran for a ninth consecutive day.

• The US strikes targeted military sites linked to Iran's missile and defence capabilities in an effort to weaken Tehran's ability to control the Strait of Hormuz.

• Iran's Revolutionary Guard launched coordinated retaliatory attacks using ballistic missiles and drones against military bases hosting US forces across the region.

• Iran said that not "a single drop" of oil or gas would pass through the Strait of Hormuz if US military operations continued, escalating threats surrounding one of the world's most important energy routes.

• Shipping traffic through the Strait of Hormuz declined sharply as security risks, inspections, and reciprocal attacks continued.

• The US Navy said it had intercepted and rerouted six commercial vessels and disabled a seventh as part of efforts to enforce a strict naval blockade on Iranian ports and isolate the country's coastline.

Japanese interest rates

• Amid rising global oil prices, markets increased the probability of the Bank of Japan raising interest rates by 25 basis points at its July meeting to more than 30%.

• Expectations of a quarter-point rate hike at the Bank of Japan's October meeting rose above 90%.

• Investors are awaiting further data on inflation, unemployment, and wages in Japan to reassess those expectations.