The USD steadies, oil prices strengthen, equity markets are down, and US yields rise as risk-on sentiment wanes. The USD index inches higher in early trading amid strengthening oil prices and speculation that the US officials plan a possible strike on Iran in the coming days. Global equities declined as investors fear the escalation of the Iran/Israel conflict, with the growing likelihood of direct US strikes in Iran. Markets were already on edge after the Fed downgraded its estimates for growth in 2025, and the Fed's projections of higher inflation levels, underscoring how tariff-driven uncertainties are complicating the prospect of easing its rate policy. "Direct US involvement in an attack on Iran would almost certainly trigger a major spike in oil prices," said Bhargava, CEO at Straits Investment. "This surge would aggravate global inflation, making central bank efforts - like the Fed's - to control it more difficult and potentially delaying interest rate cuts." Elsewhere, oil prices strengthened on escalating Middle East tensions, Bitcoin firmed to $105.2k, while gold and silver prices eased in early trading. Today, we will focus on the Bank of England's interest rate decision, BoE Minutes, and CAD Employment Insurance Beneficiaries Change, while US markets are closed for the Juneteenth national holiday.
In other news. Shipping insurance costs spike in the Middle East as the Israel-Iran conflict rages. Bannon warns a Trump Iran strike would 'tear US apart.' Google suffers blow at EU's top court over record EUR 4.12bn competition fine. The Greek PM opens the door to a shift on nuclear power. The US edges closer to an Iran strike as military assets move into position. Putin's investment forum fails to attract Western companies. Amazon orders employees to relocate to Seattle and other hubs. Auto tariffs are expected to hike US car prices by nearly $2,000 per vehicle. Immigration curb slashes Canada's population growth rate to zero.
In currency markets. The Swiss National Bank cut its interest rates to zero amid negative inflation rates and global outlook concerns. The Norwegian central bank surprised markets by cutting its interest rates and suggesting more rate cuts are on the cards. With the US markets closed for Juneteenth, we anticipate investors will remain on the sidelines. CNY is flat, while Asian currencies weaken by 0.2% on average against the USD. Trading currencies are mixed, with NOK& NZD tumbling 0.8%, AUD weakening 0.6%, MXN & JPY falling 0.35%. ZAR down 0.2%, SEK & DKK flat, and CHF firming 0.2% against the USD.
CAD weakens through 1.37 despite rising oil prices and the cautious stance of the Bank of Canada governor regarding inflation and the economy. The BoC Governor Macklem warns of firmer inflation and ongoing uncertainty about the impact of US tariffs. Macklem said that the bank is proceeding carefully with monetary policy, wanting to see through the noise to set policy that supports the economy while ensuring inflation remains low and stable for Canadians. We expect the Loonie to stay steady with the absence of the US markets, and caution ahead of Friday's CAD Retail Sales report.
EURCAD remains steady despite the lack of any high-tier economic data releases and caution amid escalating Middle East tensions.
EUR is flat, holding steady below 1.1500 amid growing risk-off sentiment. The euro remains defensive, staying above 1.1450 as rising geopolitical tensions in the Middle East support the USD. With the US absent today, investors will be watching speeches from ECB policymakers for fresh impetus. The ECB has paused its easing policy and adopted a data-dependent strategy, perceived by investors as a more hawkish tone. President Lagarde has ruled out further easing unless external conditions deteriorate sharply and has lifted growth.
GBPEUR advances in early trading with expectations that the Bank of England will keep interest rates on hold.
GBP bounces off 1.3400 heading into the Bank of England's interest rate decision. The pound holds steady despite a shift to risk-off sentiment as investors shift to safe-haven USD and CHF. The focus will be on the Bank of England, which is expected to leave the interest rate flat at 4.25% despite inflation above the bank's target rate. We anticipate the pound to hold steady, with investors cautious about the prospect of the US considering actions in Iran.
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