Dollar edges up 0.06% as US-Iran conflict lifts crude, inflation expectations

Rich Asplund Tue, July 21, 2026 at 7:34 AM PDT 4 min read

• DX-Y.NYB
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The dollar index (DXY00) is up by +0.06% today. The dollar is slightly higher as the escalation of hostilities between the US and Iran boosts crude oil prices, raising inflation expectations that could prompt the Federal Reserve to tighten monetary policy—a supportive factor for the dollar. Higher T-note yields today have also strengthened the dollar's interest rate differentials. However, today's rally in stocks has curbed liquidity demand for the dollar, limiting gains in the currency.

The US and Iran exchanged strikes for a 10th consecutive day as mediators sought to revive a truce. The US targeted military command centers, launch sites, and air defenses in Iran, while Iran attacked US military sites in Kuwait and Jordan. The UK navy also reported today that Iran struck two vessels around the Strait of Hormuz.

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The swaps markets are discounting the odds at 18% for a +25 bp rate hike at the next FOMC meeting on July 28–29.

EUR/USD

EUR/USD (^EURUSD) is down by -0.01% today. The euro is slightly lower amid a stronger dollar. Additionally, today's +2% increase in crude oil prices to a 5-week high is negative for the Eurozone economy and the euro, as Europe imports most of its energy. However, losses in the euro are limited after the German July ZEW survey expectations of economic growth rose more than expected to a 5-month high.

• The German July ZEW survey expectations of economic growth rose +15.8 to a 5-month high of 26.3, stronger than expectations of 15.3.

The markets are discounting a +4% chance of a +25 bp rate hike by the ECB at its next policy meeting on Thursday.

USD/JPY

USD/JPY (^USDJPY) is up by +0.25% today. The yen tumbled to a new 39-year low against the dollar. Today's +2% increase in crude oil prices to a 5-week high is pressuring the yen, as it is bearish for the Japanese economy—Japan imports more than 90% of its energy. Higher T-note yields today are also weighing on the yen. In addition, today's +3% jump in the Nikkei Stock Index has reduced safe-haven demand for the yen.

The risk of intervention in currency markets to support the yen is high, as the yen remains firmly above 160 per dollar at a 39-year low. Japanese authorities have intervened in the forex market several times in the past when the yen surpassed that level.

Story Continues

The markets are discounting a +0% chance of a +25 bp BOJ rate hike at the next policy meeting on July 31.

Precious Metals

August COMEX gold (GCQ26) today is up +55.10 (+1.37%), and September COMEX silver (SIU26) is up +2.228 (+3.90%).

Gold and silver prices are sharply higher today. Precious metals have safe-haven support on the escalation of hostilities between the US and Iran, as both countries exchanged strikes for a tenth consecutive day. Concerns that the conflict could widen are also supporting precious metals after Houthi rebels said they will impose a maritime blockade on Saudi Arabia in retaliation for what they say is the kingdom's siege on the Yemeni capital. Silver prices also garnered carryover support from today's rally in copper prices to a 1-month high after China's Shanghai copper inventories dropped to a 10.5-month low.

Today's dollar strength is bearish for precious metals prices. Higher global bond yields today are also negative for precious metals. In addition, today's +3% increase in crude oil prices to a 5-week high raises inflation expectations and could prompt the world's central banks to tighten monetary policy—a bearish factor for precious metals.

Recent fund liquidation of precious metals is bearish for prices, as long holdings in gold ETFs fell to a 9.75-month low on Monday, after reaching a 3.5-year high on February 27. Long holdings in silver ETFs fell to a 1-year low last Tuesday from the 3.5-year high posted on December 23.

Strong central bank demand for gold is supportive of gold prices, following news that bullion held in China's PBOC reserves rose by +480,000 ounces to 75.44 million troy ounces in June—the twentieth consecutive month the PBOC boosted its gold holdings.