Dollar Under Pressure Amid Increasing Escalations

U.S. forces struck Iranian military sites overnight, including missile and air-defense facilities, and redirected nine commercial vessels, while disabling one, to prevent them from entering or leaving Iranian ports. Iranian forces struck U.S. military sites in Kuwait and Jordan, and the Iran-backed Houthis targeted the Saudi Arabian owned Encelia, a refined products tanker, and Layla, a crude oil carrier. The Houthis actions threaten to close another chokepoint vital to the global energy markets in the Bab el-Mandeb Strait, at the mouth of the Red Sea, which has been crucial in keeping oil flowing amidst the near-halt to shipping through the Strait of Hormuz. Some ships are already beginning to avoid the Red Sea route as a result, which has caused oil prices to surge higher as supply concerns mount further.

Concerns regarding the independence of the Federal Reserve are weighing on the Dollar as well amid reports that some officials are discussing whether an external review of the 2023 collapse of Silicon Valley Bank provides legal basis to remove Fed Governor Michael Barr from the Board of Governors. Barr, who was Vice Chair for Supervision at the time of SVB’s collapse, is a Biden appointee, and ousting him would provide Trump the opportunity to have appointed the majority of governors on the board. Some are suggesting that the review is politically motivated as a result.

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GBP

The British Pound Sterling is down against the Greenback for the sixth day in a row, on track for its longest losing streak in nearly 9 months. Prime Minister Andy Burnham made a statement earlier this week that he would seek flexibility in the U.K.’s fiscal rules, which has broadly weighed on the Pound as Traders place a renewed focus on government spending. Newly appointed Chancellor of the Exchequer John Healey attempted to calm markets this morning by pledging ‘disciplined control’ of public finances, but it has done little to stop the Pound’s slide. Traders will give particular scrutiny to the autumn budget when it is released for guidance on the new government’s fiscal plans.

EUR

The Euro is down against the Buck after the European Central Bank elected to keep its key policy rate on hold at 2.25% this morning. While today’s hold was widely anticipated, the ECB also stated that it is not ‘pre-committed to a particular rate path,’ which has Traders balking amid expectations that the ECB will hike in September. The ECB failing to validate those expectations is taking a toll on the common currency.