FX markets open the week cautiously as geopolitical tensions and higher oil prices weigh on risk appetite. The dollar is firmer on elevated US yields and expectations of restrictive Federal Reserve policy, while sterling continues to outperform on improving UK political sentiment. The euro remains constrained by concerns that higher energy costs could further weaken regional growth.

Equity markets are broadly lower following fresh US strikes on Iran, with the sharpest losses seen in Asia. Oil is around 4% higher, adding to inflation concerns and pushing bond yields upward. Despite the weaker tone across risk assets, volatility in major currency pairs remains relatively contained.

Markets remain cautious but have stopped short of adopting a full risk-off stance following the latest US-Iran strikes. Investors appear to be treating the return of negotiations as the next major test after talks were suspended during ceremonial funerals for former Supreme Leader Khamenei.

President Trump’s warning at the NATO summit that the ceasefire may already have broken down had a limited market impact. Investors are increasingly accustomed to his strategy of raising tensions before seeking concessions, while reciprocal attacks have characterised the conflict from the beginning.

The dollar has regained momentum as renewed tensions in the Middle East push oil sharply higher and bring geopolitical risk back into focus. Brent crude rose more than 8%, briefly moving above $80 a barrel, after President Trump said the ceasefire with Iran was effectively over following fresh attacks on commercial shipping in the Persian Gulf.

The move has challenged the market’s recent confidence that tensions were easing. Improved shipping flows through the Strait of Hormuz and the earlier fall in oil had encouraged bearish positioning, leaving prices exposed to a sharp squeeze when risks returned.

FX markets are starting the day with a cautious tone, as geopolitical risk, firmer oil prices and a softer risk backdrop continue to shape price action. The dollar remains well supported near recent highs, sterling is still benefiting from favourable yield dynamics, and the euro is struggling to find the momentum needed to break higher.

The key theme for markets is the return of safe-haven demand. Renewed tensions around the Strait of Hormuz have lifted oil prices and weighed on sentiment, helping the greenback hold firm despite last week’s softer US labour market data. With the economic calendar relatively quiet, investors are leaning more heavily on geopolitical headlines and positioning rather than fresh macro signals.

FX markets remain relatively contained, but sterling continues to hold the stronger tone established after last week’s softer US labour market data.

GBP/EUR is trading around 1.17, leaving euro buyers close to the best levels seen in more than a year. The break above the long-standing 1.1600–1.1630 resistance zone has shifted near-term momentum in sterling’s favour, although the move now needs to consolidate above those levels to avoid looking overstretched.

FX markets start the week on a more measured footing, with recent dollar strength losing some of its edge and major pairs settling into familiar ranges. The broader tone is one of consolidation rather than conviction, as softer inflation signals, lower oil prices and a lighter data calendar leave investors reluctant to chase moves too aggressively. With central bank expectations still doing most of the heavy lifting, the next meaningful shift in direction is likely to come from fresh evidence on inflation and labour market resilience.

The dollar’s advance has started to lose momentum after the DXY touched a 15-month high of 101.800 on 24 June. A softer US labour market report last Thursday accelerated the pullback, with investors now demanding stronger evidence before extending bets on a more hawkish Federal Reserve.

Sterling is ending the week with momentum, pushing higher across the G10 space and notching fresh one-year highs against the euro, Swedish krona and Canadian dollar.

The pound continues to draw support from elevated UK yields, which make it expensive for markets to hold short sterling positions. With volatility still subdued and global risk sentiment holding firm, investors have had little incentive to rebuild bearish pound positions.

GBP/EUR has climbed to its highest level in more than a year, with a decisive break above a long-standing resistance area helping to unlock further sterling demand.

The move followed an extended test of the 1.1600 to 1.1630 zone, where layers of sell orders had previously capped gains. Once that area gave way, momentum accelerated, leaving a move towards 1.1700 looking increasingly likely.