Oil holds above $85.50 after US-Iran strikes as gold fails to rally

US strikes on Iranian launchers and Tehran's reply lifted crude 2.5% on Monday and pushed US yields higher; WTI holds above $85.50 into Tuesday, and gold still cannot rally.

Major currencies

• The US dollar corrected lower through Monday's session after Federal Reserve Chair Kevin Warsh's hawkish Jackson Hole speech on Friday, the dollar index sliding around 0.26% even as rate-hike bets held. The repricing itself is intact — it is the currency that gave ground, not the bet. The Mexican peso gained about 0.20% against it, and the Canadian dollar rather more, with USD/CAD down 0.24%.
• Sterling is our weakest major on an intraday basis, which is a basket reading against all the majors rather than a call on cable: GBP/USD itself edged up 0.09% to around 1.3550, still more than a cent below the six-month high it printed just short of 1.3700 after three consecutive declines. UK shop prices rose at their fastest pace since 2024, a modestly hawkish data point for the Bank of England, which forecasts CPI to peak at 3.2% in October and November. GBP/JPY stays capped around 217.00.
• The New Zealand dollar tops our intraday gauge on a very small move: NZD/USD sits just above 0.5900, barely changed on the session and about seventy pips below the late-August peak that stalled short of 0.6000. The RBNZ decides tomorrow and is expected to lift the official cash rate 25 basis points to 2.75%.
• The Japanese yen firmed, USD/JPY down 0.21% to around 159.80 after briefly trading above 160.00. Japan's manufacturing PMI came in at 54.9, a touch under the 55.1 our calendar carried, but new orders grew at their sharpest pace in more than eight and a half years. Scotiabank sees the currency supported below 160.00, the level desks have been flagging as intervention risk, and US Treasury Secretary Scott Bessent said he expects the yen to strengthen from here.
• The Australian dollar traded flat at 0.7165, holding the upper end of its range after last week's push through 0.7200. Australia's second-quarter national accounts land tomorrow, and the inventories drag flagged in yesterday's roundup — 0.3 percentage points off growth — gets its answer there.
• The euro holds above 1.1600, trading near 1.1620 ahead of the euro-area flash inflation estimate. Germany's August preliminary reading undershot on both measures, at 2.9% year-on-year against 3.0% expected and 0.2% on the month against a 0.3% forecast, with core at 2.4% — though the annual rate still ticked up from July's 2.8%.
• The Canadian dollar rebounded on the oil rally, USD/CAD slipping back toward the mid-1.3800s after touching its highest in more than two weeks. The Bank of Canada decides tomorrow and is expected to hold at 2.25% — Rabobank and National Bank both read the pause as tariffs doing the tightening for it. Section 338 duties and Ottawa's retaliation take effect on 8 September, a week away.

Geopolitics & commodities

• The escalation came first and the oil move followed it. American forces struck two Iranian rocket launchers on Larak Island, and Tehran answered with missile and drone attacks on two air bases in Jordan and on assets in the United Arab Emirates. WTI crude oil traded near $85.00 and 2.5% higher on Monday, gained again into Tuesday to around $85.60, and Brent settled above $90. The US 10-year Treasury yield reached 4.768% — the channel through which the Strait of Hormuz reaches inflation and the Fed. President Trump said strikes on Iran would be limited, following an Axios report that he and senior aides were weighing limited strikes to stop Iran rebuilding the radar and missile capability it uses to threaten shipping. Late in the session UKMTO reported a tanker struck by three projectiles on an outbound transit of the strait.
• Bessent pushed the other way, saying oil prices will come down. BNY's Wee Khoon Chong flags a second reason they might: alongside the Iran risk premium, Trump's claimed deal granting US majority control of Venezuela's reserves is now part of the supply picture.
• Gold slipped 0.40% on Monday and is pinned below $4,450, changing hands near $4,445 — the level it also held twenty-four hours ago — after dipping into the $4,430 zone during the session. The size of the fall is not the story; what did not happen is. An exchange of strikes around the world's most important oil chokepoint would normally bid the metal, and it did not, because the same escalation lifts yields: oil feeds the inflation case, the inflation case feeds hike bets, and a metal that pays no interest loses on both. Gold has not been near the $4,700 ceiling since late August.
• China's private RatingDog manufacturing PMI climbed to 51.5 in August from 50.9, against a 50.9 forecast, following Monday's official reading that beat expectations without leaving contraction.

Key events today

• EUR · CPI Flash Estimate y/y: SCHEDULED — forecast 3.3% vs previous 2.9%
• EUR · Core CPI Flash Estimate y/y: SCHEDULED — forecast 2.5% vs previous 2.5%
• USD · ISM Manufacturing PMI: SCHEDULED — forecast 55.2 vs previous 55.6
• USD · ISM Manufacturing Prices: SCHEDULED — forecast 70.5 vs previous 71.1
• USD · JOLTS Job Openings: SCHEDULED — forecast 7.33M vs previous 7.36M

Market metrics

Our proprietary metrics are unchanged across the board: an MRS of 57, the FSI at 71 (Greed) and the CTS at 79 — the same three readings as yesterday. The table underneath them did move: NZD is the strongest currency today and GBP the weakest, which ends the yen's run at the top after two sessions. Friday's weekly wrap set the test that any single day's strength should be treated as temporary until one currency held the top for two sessions running. The yen did, and stopped there — and today's leader is a currency that barely moved.