Geopolitical Tensions Shape Sentiment (13-17 July 2026)

Global financial markets navigated shifting expectations as ongoing Middle East uncertainty and conflicting economic indicators drove volatility across assets.

The US dollar index held flat over the week near 100.9. While oil prices receded late in the week on news of continued US-Iran negotiations, Brent crude still secured a 5% weekly gain near $76 due to persistent transit disruptions in the Strait of Hormuz. These elevated energy costs kept global inflation fears alive, prompting market participants to price a 62% probability of a September Federal Reserve interest rate hike.

Fixed income markets experienced a late-week relief rally, with yields retracing from multi-month highs as oil pulled back. Meanwhile, gold and silver faced selling pressure, heavily restricted by the prospect of prolonged central bank tightening.

Currencies

Dollar Index (DXY): The dollar index wrapped up the week unchanged near 100.9. Safe-haven demand fluctuated alongside developments in the Middle East, while monetary policy dynamics remained supportive as Federal Reserve officials highlighted new inflation risks, including artificial intelligence-driven demand spikes.
Euro: EUR/USD declined near the key 1.1400 handle, weighed down by persistent geopolitical friction and shifting policy paths. The contrasting outlook between a restrictive Fed and a more cautious European Central Bank kept the single currency pinned near its multi-month low.
British Pound: GBP/USD climbed to $1.343, marking its highest level since mid-June and securing a second consecutive weekly gain. Sterling caught a bid on building expectations for an upcoming Bank of England rate hike, combined with a smooth political horizon as Andy Burnham prepares to step in as Prime Minister on July 20.
Japanese Yen: USD/JPY fell back toward 161 as the yen erased its weekly losses on Friday. The rebound was triggered by Finance Minister Satsuki Katayama urging domestic public pension funds to increase their allocations to local assets, helping offset domestic pressure from June producer prices accelerating to 7.1%.

Commodities

Gold Slips on Persistent Rate Anxieties

Gold prices dropped 1.5% over the week to settle near $4,100 per ounce. The metal faced headwinds from sticky inflation expectations as the market adjusted to hawkish Federal Reserve minutes. Strong underlying demand from China's central bank, which registered its largest monthly reserve accumulation in two and a half years, helped establish a firm floor.

Brent Secures Weekly Gain on Supply Fears

Brent crude fell late in the week but closed up 5% near $76 per barrel. Renewed clashes between the US and Iran kept a prominent risk premium embedded in energy markets. The International Energy Agency noted that prolonged disruptions through the vital Strait of Hormuz checkpoint continue to delay global inventory normalization.

Silver Retraces as Tight Policy Outlook Looms

Silver slid 4% over the week to finish below $60 per ounce. The combination of elevated oil prices earlier in the week and hawkish central bank rhetoric dented investor appetite for non-yielding metals. Traders trimmed positions ahead of upcoming inflation data releases and formal congressional testimony.

Fixed Income

US 10-Year Treasury Yield: The benchmark yield pulled back over two consecutive sessions to end near 4.54% as cooling oil prices offered temporary relief to fixed income investors. Despite the minor drop, yields remain supported by broad anticipation of at least one more interest rate hike before the end of the year.
UK 10-Year Gilt Yield: The 10-year gilt yield slid to 4.89%, retreating from a one-month high as energy market pressures eased. However, the benchmark still finished the week 10 basis points higher overall, driven by domestic expectations that the Bank of England will move to raise borrowing costs later this year.
Japan 10-Year Government Bond Yield: Japan’s yield dropped 10 basis points to 2.77%, down from recent multi-decade highs. The bond market rallied after government officials pushed for local institutions to purchase domestic paper, helping counter long-term worries over a massive ¥370 trillion infrastructure investment roadmap.
Germany 10-Year Bund Yield: The yield fell back to 3.03% following a sharp run up to a two-month high. Even with the late-week recovery, Bund yields advanced 10 basis points across the weekly session as policymakers warned of resurgent import price pressures and Germany finalized its extensive 2027 fiscal budget.

Economic Data

US Existing Home Sales: Domestic housing activity slowed in June 2026, with existing home sales dropping 2.4% to a seasonally adjusted annualized rate of 4.09 million units, missing market consensus. Total available inventory contracted slightly to a 4.6-month supply, while the average national home price rose 1.8% year-over-year to hit $440,600.
US ISM Services PMI: The non-manufacturing sector showed continued health in June, easing to 54.0. The minor deceleration from May matched forecasts, highlighted by a notable recovery in the employment subindex, which rose to 51.2 to post its first expansionary reading since February. The prices paid index moderated to a four-month low of 67.7.
FOMC Meeting Minutes: Minutes from the June policy meeting showed a central bank divided on its next steps, though the majority noted persistent upside risks to inflation. Policymakers left the benchmark target rate unchanged at 3.50% to 3.75%, but several participants indicated that structural factors like energy spikes and tariffs could necessitate further action.
China Inflation Rate: China's annual consumer inflation moderated to 1.0% in June from 1.2% in May, arriving just below forecast. The soft print reflected lower domestic transportation costs following fuel adjustments, while food prices recorded a third straight monthly contraction on the back of weaker seasonal pork and fruit supplies.

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