Iran and the United States exchanged fire on Thursday, intensifying attacks that have persisted since the weekend and all but torn up the truce that paused fighting last month. While the two countries wrestle for control of the Strait of Hormuz, Iran signalled that it could prod Houthi allies in Yemen to close the Bab al-Mandeb Strait at the mouth of the Red Sea, another key oil route.
Oil prices gave up earlier gains, with U.S. crude CLc1 falling 0.3% to $79.37 a barrel and Brent LCOc1 trading at $84.91 per barrel, down 0.1% on the day.
U.S. Treasury yields rose after economic figures on consumer health and the labor market did little to alter investor expectations for the path of interest rates from the Federal Reserve.
The yield on benchmark U.S. 10-year notes US10YT=RR rose 2.84 basis points to 4.573% from 4.545% late on Wednesday, while the 30-year bond US30YT=RR yield rose 2.11 basis points to 5.1041%.
The 2-year note US2YT=RR yield, which typically moves in step with Fed interest rate expectations, rose 3.6 basis points to 4.164%.
The dollar edged higher against major peers though was still near a one-month low, reflecting expectations that the U.S. economy will remain resilient and that the Fed will hold rates steady this month.
The dollar index =USD, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.24% to 100.70, with the euro EUR= down 0.17% at $1.1444.
Against the Japanese yen JPY=, the dollar strengthened 0.15% to 162.42.
Sterling GBP= weakened 0.4% to $1.348, slipping from the two-month high it reached on Wednesday following reports that soon-to-be British Prime Minister Andy Burnham will likely name fiscal conservative Shabana Mahmood as his new chancellor of the exchequer.
Precious metals fell. Spot gold XAU= dropped 1.1% to $4,014.81 an ounce and spot silver XAG= fell 2.3% to $56.43 an ounce.
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