Tensions surged after the U.S. conducted a strike on Iran, characterized by secrecy and strategic misdirection. Although damage was reported, the real impact on Iran’s nuclear facilities remains uncertain. The global community now watches closely for Tehran’s response. In financial markets, gold eased slightly while crude oil (August WTI) strengthened modestly but retreated from earlier highs. The dollar continued its rally, advancing against all major G10 currencies, with the yen and antipodean currencies showing the largest declines. Meanwhile, the U.S. dollar is also outperforming most emerging market currencies, with investor focus shifting to upcoming remarks from multiple Federal Reserve officials.

Asia Pacific Markets

In Asia, the Japanese yen weakened sharply, pushing the dollar to its highest level against the yen since mid-May. The Bank of Japan has opted to stay on the sidelines amid economic headwinds and rising tensions with the U.S. over defense spending. Japan’s economy shrank in Q1, and a full recovery in Q2 remains unlikely, despite a recent rebound in PMI data.
Meanwhile, in Australia, the local dollar slid below the $0.6400 mark amid growing expectations of further interest rate cuts. Although Australia’s composite PMI ticked higher, it was not enough to offset concerns ahead of May’s inflation data, which markets expect will influence the central bank’s next move.

European Markets

The euro gained ground late last week but faces resistance near its 20-day moving average, with a break lower signaling potential further weakness. PMI data indicate the eurozone economy may have stagnated in Q2, following modest growth in Q1, held back by declining government spending and trade.
In the UK, sterling briefly climbed above $1.35 but has since reversed course. Economic momentum is fading after leading G7 growth earlier this year, and the Bank of England is widely expected to cut rates in August. UK PMI data offer mixed signals, with manufacturing still below the 50 mark while services maintain modest growth.

American Markets

The U.S. dollar extended last week’s gains, pushing higher across the board as it trades firmly near 99.40. While the Federal Reserve has downplayed survey data, markets remain alert ahead of several Fed speeches, including Chair Powell’s upcoming congressional testimony. Recent hard data, however, point to economic weakness: jobless claims have climbed to their highest level since mid-2023, retail sales declined for two consecutive months, and industrial output fell in two of the last three months, all pointing to a cooling labor market and cautious consumer behavior.