FX markets are opening the week with a widening divide between the major currencies and their commodity-linked counterparts. Higher oil prices are supporting the Norwegian krone, Australian dollar and Canadian dollar, while the euro faces renewed pressure from the eurozone’s dependence on imported energy. Sterling remains caught between cautious Bank of England expectations and rising inflation risks, while the dollar has yet to attract the decisive safe-haven demand normally associated with a geopolitical shock.

The dollar is heading towards its strongest weekly gain in five weeks as geopolitical tension, renewed trade friction and weaker confidence in previously dominant equity themes drive demand for defensive assets. The DXY is closing in on 102, supported by higher energy prices, rising US yields and a resilient domestic economy.

Renewed tensions in the Middle East have pushed energy markets back to the centre of the global outlook, with Brent crude trading near $96 a barrel and investors reassessing the risks to inflation, interest rates and currencies. Attention now turns to today’s ECB meeting, where policymakers are expected to keep rates unchanged while maintaining a hawkish stance. Any signal that a September increase remains possible could support the euro, although persistently higher energy prices continue to threaten the region’s growth outlook and may limit its upside.

FX markets remain cautious as investors balance softer inflation data against renewed geopolitical risks and firmer energy prices. The dollar has extended its recent recovery, although further gains may require a clearer catalyst from economic data or central bank policy.

Global markets continue to balance escalating geopolitical tensions against unusually subdued currency volatility. Further US strikes on Iranian targets and growing concerns around regional energy infrastructure have supported oil prices, short-dated yields and the dollar, yet FX markets remain hesitant to price a sustained risk-off move.

Markets open the week balancing softer US inflation, an important ECB decision and a change of government in the UK. Oil approaching $90 a barrel adds another layer of uncertainty, leaving currencies, bonds and equities sensitive to central bank guidance, fiscal policy and geopolitical developments.

FX markets remain orderly despite renewed geopolitical tension, with investors resisting a broad shift into defensive positioning. Volatility remains well below the peaks recorded earlier this year, limiting demand for traditional safe havens and allowing carry-driven strategies to remain influential.

Sterling led gains across the major currencies as softer US inflation data weakened the dollar and improved the wider FX backdrop. GBP/USD climbed to a two-month high, while the pound reached its strongest level against the yen since 2008. The euro remained supported above 1.14, although higher energy prices continued to restrict its upside.