The US Dollar (USD) has regained positive traction against major currencies, including the Canadian Dollar (CAD) and the Euro (EUR), as geopolitical tensions in the Middle East intensify and central bank policy expectations shift. The USD/CAD pair edged higher during the Asian session on Friday, breaking a three-day losing streak and trading above the 1.4000 psychological mark, although the uptick lacked strong bullish conviction [1]. This movement comes as investors look past Thursday's unimpressive US macroeconomic data, with the Advance US GDP report showing moderating growth in the second quarter and the US Personal Consumption Expenditures (PCE) Price Index indicating signs of cooling inflation, which has tempered hawkish expectations for the Federal Reserve (Fed) [1].
Despite these data points, volatile crude oil prices and escalating US-Iran tensions have supported the safe-haven appeal of the USD. The US military recently completed a heavy wave of strikes against Iranian targets in response to Tehran's missile attacks on American forces earlier in the week [1]. Additionally, Iran rejected Oman's proposal regarding partial control of the Strait of Hormuz, and repeated attacks by Yemen's Houthi militias in key maritime routes have raised concerns about disruptions to global energy supplies, which could lend support to crude oil prices and the commodity-linked Loonie (CAD) [1].
In the EUR/USD market, the pair trades in negative territory around 1.1500 during early European trading hours on Friday, with the Euro softening against the USD as Middle East tensions weigh on riskier assets [2]. Iranian officials have issued strong warnings following US military actions, with the Iranian Parliament Speaker stating that the US will pay the price for killing Iranian civilians, and the Iranian military threatening to keep the Strait of Hormuz closed [2].
On the policy front, stronger-than-expected GDP data from the Eurozone and Germany have reinforced expectations that the European Central Bank (ECB) could deliver a second interest rate hike this year, potentially as soon as September [2]. Analyst Elias Haddad from Brown Brothers Harriman noted that the recovery in Eurozone economic activity and above-target inflation strengthens the case for further ECB tightening [2]. Technical analysis indicates that EUR/USD remains capped below the 100-day simple moving average (SMA), with resistance at 1.1510 and 1.1570, and support at 1.1425 and 1.1340 [2].
CONCLUSION
The US Dollar has strengthened against both the Canadian Dollar and the Euro amid heightened geopolitical risks and shifting central bank policy expectations. While safe-haven flows and oil market volatility support the USD, upcoming policy decisions from the Federal Reserve and the European Central Bank, as well as ongoing Middle East developments, remain key factors for currency markets. Investors should monitor these evolving risks and central bank signals for further direction.