Despite President Trump’s two-week reassurance to ease fears of a U.S. strike on Iran, Sunday’s attacks on three Iranian nuclear sites and Tehran’s “it’s our turn” response reignited concerns of a broader Middle East conflict. Iran’s threat to block the Strait of Hormuz added to the tension, though markets doubt its ability to hold the blockade for long. On the same line were headlines from The Wall Street Journal (WSJ) citing US B-2 bombers in transit.
Meanwhile, U.S. trade talks showed no progress, and weak U.S. data led Fed officials to expect two rate cuts in 2025. Markets remain cautious ahead of key events this week, including June PMIs, Fed Chair Powell’s testimony, Core PCE, Durable Goods Orders, and final Q1 GDP. This keeps the U.S. Dollar firm while pressuring risk assets.
Japan and Australia posted strong June PMIs, but haven demand still weighed on riskier assets—lifting USDJPY and hurting AUDUSD and NZDUSD. USDCAD also rose, despite higher crude oil prices, Canada’s key export.
WTI crude opened the week higher after a three-week rally, while gold stayed under pressure near $3,350 technical support. Bitcoin (BTCUSD) and Ethereum (ETHUSD) remain weak after their biggest weekly losses since March, hit by fading retail interest despite solid institutional demand. Stocks slipped and bond yields stalled following last week’s losses.
Broad risk-off sentiment and a lack of trade-positive news from Europe, the UK, and Japan dragged their currencies lower. EURUSD ended a two-week winning streak with slight losses, while GBPUSD posted its biggest weekly drop since January. USDJPY rose, opening the week with a gap-up, ignoring strong Japan PMIs and cautious sentiment ahead of PM Ishiba’s speech.
Adding to tensions, reports suggested Trump is pushing for a Japan-South Korea-Australia meeting at the NATO summit, raising geopolitical risks. His comments hinting at regime change in Iran further fueled risk aversion.
Given the risk-off mood, China’s stimulus signals, no negative news on the US-China trade front, and strong June PMIs from Australia, the Australian, New Zealand, and Canadian Dollars failed to recover. Even rising crude oil prices—Canada’s key export—couldn't stop USDCAD from logging its biggest weekly gain in four months, ahead of Canada’s inflation data and key U.S. economic events this week.
WTI crude oil opened the week with a gap-up after a three-week rally, supported by fears of a full-scale Middle East war and OPEC’s upbeat outlook for 2025 energy demand. Prices also gained from falling U.S. inventories and the lack of response to Trump’s “Drill Baby Drill” push. Additional support came from China’s stimulus efforts, strong PMIs from major economies, and continued global rate cut expectations.
The US Dollar’s strength is weighing on gold and major cryptocurrencies, despite the precious metal’s haven demand. Bitcoin (BTCUSD) and Ethereum (ETHUSD) saw their biggest weekly drop since March, as institutional buying jostles with retail interest and mixed on-chain signals.
Preliminary June PMIs from Europe, Germany, the UK, and the US—along with a speech from ECB President Lagarde—will guide markets on Monday. However, all eyes remain on Iran, which is preparing to retaliate against the U.S. and potentially block the Strait of Hormuz, threatening global supply chains. Trump’s regime change hints and global divisions over Middle East policy add to market tension.
If PMIs are strong, as seen in Australia and Japan, the Euro, Pound, and Dollar may gain slightly. Still, overall risk aversion could keep the US Dollar strong while pressuring other major currencies, gold, crypto, and equities. A surprise easing in US-Iran tensions could trigger a short-term recovery in non-USD assets ahead of this week’s key data releases.
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