Energy and tech risk and bond selloff keep the dollar supported
The USD remains supported by higher Treasury yields, geopolitical risks lifting oil, and risk-off sentiment from a tech selloff, while EUR/USD stays range-bound amid mixed ECB signals.
USD
The dollar is holding firm in early European trade, supported by higher Treasury yields and a broader risk-off move following the Samsung-led technology selloff in Asia. The geopolitical backdrop is adding further support: attacks on shipping in the Strait of Hormuz have lifted oil prices and reinforced safe-haven demand for the greenback. Markets are also looking ahead to Wednesday’s FOMC minutes, with rate futures still pricing a meaningful probability of a US rate increase by year-end. With explicit Fed guidance fading, next week’s US CPI release is becoming the main driver for USD positioning. For now, higher yields and weaker equity sentiment keep the dollar supported, though Wednesday’s minutes will determine whether that support can extend.
EUR
EURUSD remains subdued and range-bound below its 20-day average, with the pair consolidating in a well-defined summer range. One-week implied volatility has rebounded from Monday’s year-to-date low of 4.10% towards 4.75% as markets begin to price next week’s US CPI release.
The key issue for the euro is the ECB's mixed communication. Schnabel warned yesterday that Middle East supply chain pressures cannot be ignored, while Panetta this morning acknowledged upside inflation risks but also highlighted weaker growth prospects. That split leaves the ECB without a clear policy message and limits directional conviction in EUR/USD. Higher energy prices are lifting Bund yields, while wider OAT-Bund spreads add a peripheral risk premium. With no clear catalyst, EURUSD is likely to remain range-bound over the next 24–48 hours, with Brent and further ECB commentary the main drivers.
GBP
Sterling remains constructive, with GBPUSD approaching resistance levels despite the broader global bond sell-off. Ten-year gilt yields have risen to a two-week high of 4.823%, reflecting higher energy prices and Treasury weakness.
The key domestic event is the Bank of England’s Financial Stability Report at 10:30 CET. Markets will focus on whether the BOE adjusts bank leverage rules in a way that could free balance-sheet capacity for additional gilt purchases. A favourable decision could support demand for gilts, ease pressure on UK rates and provide further support to GBP.
Sterling is therefore caught between a constructive technical picture and a rates market repricing higher on global inflation concerns. A clear leverage-rule adjustment would support GBP, while disappointment could trigger a pullback towards near-term support.
CAD
The Canadian dollar is receiving support from higher oil prices, with Brent rising more than 1% after attacks on vessels in the Strait of Hormuz. As a major oil exporter, Canada benefits directly from the energy risk premium, leaving USDCAD under modest downward pressure.
That support is partly offsetting the broader risk-off tone from the technology selloff in Asia. For now, CAD is trading largely as an oil proxy: sustained strength in Brent should support the currency, while any de-escalation in Middle East tensions could quickly remove that support.
US-Iran negotiations are reportedly moving towards a lasting deal, which remains the main downside risk for oil and therefore for CAD. Over the next 24–48 hours, USDCAD will be driven primarily by crude prices, developments in the Strait of Hormuz and Wednesday’s FOMC minutes.