The ongoing conflict between the United States and Iran has once again intensified, with a shift in the nature of military engagement.
In recent months, the primary focus of hostilities has targeted military installations.
However, the current strategy employed by the United States includes assaults on critical infrastructure, covering airports, train stations, bridges, and other essential facilities.
In retaliation, Iran has executed attacks on US Special Forces bases, radar systems, power facilities, and desalination plants.
Moreover, Iranian military actions have extended to installations in Kuwait, Qatar, Bahrain, Oman, and Saudi Arabia.
Consequently, both parties have commenced operations aimed at dismantling not only each other’s military infrastructures but also economically significant sites.
Thus far, the repercussions of this escalating conflict on the financial sector and investor sentiment have been relatively minor, as evidenced by marginal gains in the US dollar, while oil prices have spiked by nearly 15 percent during a week without experiencing a substantial increase overall. Conversely, gold has faced sustained pressure and has experienced a decline in value. On the economic front in the United States, a softer Consumer Price Index (CPI) and Producer Price Index (PPI) released last week have alleviated some of the hawkish sentiments.
However, these sentiments may be of short duration due to the potential ramifications of rising oil prices on inflation forecasts. Notably, inflation stemming from the US-Iran conflict contributed to an increase in June’s average 30-year mortgage rate, which reached 6.5 percent.
The prevailing downward trend suggests that the market is exercising caution to avoid excessive exposure, subsequently reducing risk by the weekend to ensure preparedness for any further deterioration of the situation, which may present opportunities for much needed adjustments.
The expansion of US attacks and Iranian retaliatory measures targeting civilian infrastructure and US military positions in the Gulf region, alongside a naval blockade of Iranian ports, have significantly curtailed oil tanker traffic through the Strait of Hormuz.
As the geopolitical landscape worsens, both energy prices and supply chain logistics are under considerable strain, with the potential for further escalation.
Moreover, on the US economic front, mixed indicators have emerged. The ISM Services Index fell to 54 in June from 54.5 in May, although it remained above the previous high for the 24th consecutive month.
The housing sector has also shown weakness, as existing home sales declined by 2.4 percent, failing to meet projections.
Despite the recent US economic data suggesting a moderation in inflation, the simultaneous surge in oil prices and the risk of further escalation in US-Iran tensions have increased the likelihood of interest rate hikes, as prolonged conflict may necessitate such measures.
The outcome of this situation will largely hinge on the trajectory of oil prices in the forthcoming week, with Brent crude currently trading around $88 and the market appearing to accept a range between $85 and $92.
The limited increase in oil prices may be attributed to the US decision to retract a proposed 20 percent shipping fee for the Strait of Hormuz, following objections from the shipping industry and the International Maritime Organization.
Other contributing factors may include minimal damage sustained by naval assets and oil infrastructures.
The market remains vigilant, as any potential supply shock resulting in sustained oil prices exceeding $90 could precipitate severe unrest in oil-importing nations, particularly those burdened with debt.
This week, the Pound Sterling experienced a notable increase in value following reports that Prime Minister-elect Andy Burnham intends to appoint Home Secretary Shabana Mahmood to the position of Chancellor of the Exchequer. Mahmood is perceived as a more popular candidate with a robust profile in domestic policy matters.
Although the formulation of economic policy presents significant challenges, initial reactions from participants in Britain’s financial markets have been favourable.
This positive sentiment may stem from the belief that Mahmood possesses a fiscally disciplined approach, which is essential for the UK’s economy at this juncture.
Furthermore, it can be argued that Burnham’s leadership has also positively influenced the value of the Pound Sterling. The market had initially anticipated Ed Miliband to assume the Chancellor position. However, the official announcement is anticipated to occur shortly.
Additionally, the European Central Bank (ECB) is scheduled to convene on July 23 to decide on its policy rate. Despite a recent uptick in oil prices, it is projected that the ECB will maintain its current interest rates with a potential increase in September should the ongoing geopolitical crisis persist.
Nonetheless, the forthcoming projections from the ECB are expected to offer insights into the direction of its future decisions.
It is important to note that the effects of the policymakers’ decisions on the European currency may be limited, as the primary focus remains on the conflict between the United States and Iran.
WEEKLY OUTLOOK - July 20-24
#GOLD @ $ 4017- A bearish trend for gold is expected to persist, and sellers will likely keep selling as prices rise unless tensions in the Middle East subside.
If prices break above $4095, it could lead to a target of $4150 or higher. However, risk is that if the prices fall below $3938, it may prompt further declines to $3850 or lower.
#EURO @ 1.1439- Euro must surpass 1.1498 to reach 1.1535. However, a decline below 1.1402 could lead to a drop to 1.1350.
#GBP @ 1.3455- The Pound Sterling may experience additional gains prior to a potential decline. It is anticipated that it will remain constrained below the level of 1.3530.
A breach of the 1.3370 threshold could lead to a decline towards 1.3330. Conversely, movement above this resistance may result in an advance to 1.3570.
#JPY @ 162.39- As long as it doesn’t surpass 162.98 to reach 164.10, the JPY may test levels at 161.40 or 159.20.
Copyright Business Recorder, 2026
The writer is former Country Treasurer of Chase Manhattan Bank. The views expressed in this article are not necessarily those of the newspaper
He tweets @asadcmka
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