After Israel targeted Iran’s proxy groups, attention shifted to Iran itself following the IAEA’s discovery of nuclear enrichment violations. The ongoing conflict has seen U.S. involvement in intercepting missile attacks on Israel. Market reaction to these geopolitical tensions has been surprisingly muted. The dollar has softened, gold and oil have dipped, and equity markets are showing gains. Most G10 currencies are stronger against the dollar, although the Swiss franc and Japanese yen show slight losses.

Asia Pacific Markets

In Asia, both Japanese and Australian currencies showed notable movements. The BOJ is not expected to adjust interest rates but may shift focus to its balance sheet reduction. The Australian dollar, meanwhile, recovered from a sharp drop triggered by the Israel-Iran conflict. It gained momentum ahead of employment data due later this week, which is expected to show a slowdown in job growth. Nonetheless, the Australian labor market remains resilient, with employment gains in line with last year's average during the same period.

European Markets

The euro remained within a narrow trading band, reflecting a continued preference for buying on dips. Despite a temporary decline linked to geopolitical concerns, it has shown resilience. Slowing wage growth in the eurozone, projected to fall significantly by the end of next year, could pose risks to consumption.
In the UK, sterling fluctuated but remained firm. Despite economic contraction in April, it touched new multi-year highs, supported by positive market sentiment. Although house prices slipped slightly in June, investor focus is now on the upcoming inflation report, which could influence the Bank of England’s next policy steps.

American Markets

The dollar gained briefly following Israel’s escalation against Iran but has since weakened. It failed to hold gains and is now trading lower, struggling against most major currencies. Despite rising before the weekend, the Dollar Index closed the week down roughly 1%, marking one of its weakest closes in years. Softer inflation data, declining yields, and trade policy threats from President Trump have all weighed on the greenback. Markets are now eyeing the upcoming Federal Reserve meeting. While no change in rates is expected, investors will focus on Chair Powell’s remarks and updated economic projections.