June 23, 2025 – Written by David Woodsmith
STORY LINK US Strikes on Iran: Dollar Pares Gains Against Euro, Pound Sterling
The market response to the US military strike on Iran has been relatively contained with the dollar making only limited net gains and trading below initial highs.
The Euro to Dollar (EUR/USD) exchange rate dipped to near 1.1450 before trading close to 1.1500 with the Pound to Dollar (GBP/USD) exchange rate finding support close to 1.3400 and rallying to 1.3440.
Equity markets also quickly recovered initial losses, but the Iranian response will be crucial for next moves.
ING commented; “the dollar bounce looks small so far, especially considering its oversold and undervalued position. This follows the recent script: markets are quick to punish but slow to reward the dollar. For this to change, we think a prolonged period of elevated oil prices is necessary, as that would dent the appetite for oil-averse safe-haven alternatives like EUR.”
Over the weekend, The US attacked Iran’s nuclear infrastructure with air strikes on three key facilities including the Fordo enrichment site.
The US used the so called “bunker-busting” bombs which are designed to penetrate underground facilities.
At this stage, there has been no retaliation by Iran, although inevitably there have been threats.
Commonwealth Bank of Australia strategist Carol Kong commented; “The currency markets will be at the mercy of comments and actions from the Iranian, Israeli and U.S. governments. The risks are clearly skewed to further upside in the safe haven currencies if the parties escalate the conflict.”
Charu Chanana, chief investment strategist at Saxo, was more sanguine over the outlook; “Markets appear to be treating the U.S. strikes on Iran as a contained event for now, rather than the start of a broader war.”
She added; “The muted haven flows suggest investors are still assuming this is a one-off escalation, not a disruption to global oil supply or trade.”
In this context, oil prices have not held an initial spike higher. According to ING; “If indeed this geopolitical risk and oil spike proves to be only temporary, we think markets will rapidly default back to preferring strategic USD shorts on the back of US-generated bearish drivers.”
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