Dollar Firms as Oil Climbs After Fresh Iran Strikes

The US dollar strengthened on Tuesday while Brent crude rose back toward $98 per barrel after fresh US strikes in southern Iran disrupted hopes for a rapid peace agreement. The S&P 500 and Dow remained near record highs after strong recent gains, while the FTSE 100 ended a four-week losing streak on Friday. Dell shares surged to a record high after Lenovo posted strong revenue growth, while gold prices slipped as traders increased expectations for another Federal Reserve rate rise this year.

Equities

The FTSE 100 closed 0.22% higher on Friday, ending a four-week losing streak and securing a 2.66% weekly gain as investors reacted to softer UK economic data and reduced expectations of an immediate Bank of England rate rise. The FTSE 250 rose 0.96% by the close, while weaker retail sales figures and easing inflation pressures encouraged traders to scale back bets on a June rate increase.

Chemical stocks led gains in London on Friday, with the sector index climbing 3.45%, while aerospace and defence shares added 2.76%. Markets also responded to comments from Bank of England policymaker Alan Taylor, who said the risk of persistent inflation from higher energy prices appeared lower than in 2022. BofA Securities now expects the next UK rate rise to come in July rather than June.

Political uncertainty remained in focus after Prime Minister Keir Starmer faced renewed pressure from Labour MPs over living costs and weak consumer confidence. Official figures released on Friday showed British retail sales fell by the most in almost a year during April, reinforcing concerns about slowing household spending.

In the US, the Dow Jones Industrial Average closed 0.58% higher on Friday at a record 50,579.70. The S&P 500 gained 0.37%, securing its eighth consecutive weekly advance, while the Nasdaq Composite added 0.19%. Investors welcomed signs of progress in US-Iran talks and continued strong corporate earnings.

Dell Technologies closed 17% higher on Friday at a record high after Lenovo reported a stronger-than-expected 27% rise in quarterly revenue, lifting sentiment across the computer hardware sector. HP rose 15% by the close on the same read-across. Qualcomm jumped 12% on Friday, helping lift semiconductor shares, although Nvidia fell 1.9%.

Estée Lauder ended Friday 12% higher after the cosmetics group and Spanish perfume company Puig called off merger discussions. Workday rose 5% after the software company beat forecasts for first-quarter revenue and profit.

US Treasury yields eased late in the week, with the benchmark 10-year yield falling to 4.558%, offering further support to equity markets as investors assessed the outlook under newly sworn-in Federal Reserve chair Kevin Warsh.

Forex & Commodities

The US dollar steadied early on Tuesday as hopes for a quick agreement to reopen the Strait of Hormuz faded following fresh US strikes on Iranian targets and comments from Secretary of State Marco Rubio that negotiations with Tehran could still “take a few days”. The dollar index traded at 99.03 in Asian trading, while the euro edged lower to $1.163 and sterling slipped to $1.349.

The Japanese yen traded at 158.9 per dollar on Tuesday morning as investors returned to safer assets after renewed military action in southern Iran. The Australian dollar also moved lower to $0.7158 after gaining strongly on Monday, while the New Zealand dollar weakened to $0.5848 ahead of the Reserve Bank of New Zealand’s policy decision on Wednesday.

Oil prices rose again in early Tuesday trading after Brent crude had fallen sharply on Monday. Brent futures climbed to $97.76 per barrel after the latest US strikes raised concerns that any reopening of the Strait of Hormuz could take longer than markets had hoped. Analysts said supply chains and energy exports may take months to fully normalise even if a diplomatic agreement is reached soon.

Gold prices moved lower on Tuesday morning as rising oil prices added to concerns about inflation and interest rates remaining elevated for longer. Spot gold fell to $4,529 per ounce, while silver dropped to $76.45 per ounce. Platinum traded at $1,948 and palladium slipped to $1,379.

Bond markets stabilised after heavy selling last week linked to fears of higher inflation and further rate rises. The yield on the US 10-year Treasury note fell to 4.508%, while the two-year yield declined to 4.057%.

Interest rate expectations also shifted further after traders increased bets on another US Federal Reserve rate rise before the end of the year. CME FedWatch data now implies a 56% probability of a rate increase by December as policymakers continue to assess inflation risks linked to energy prices and ongoing disruption in the Middle East.