The US Dollar (USD) gained overnight due to news of possible military actions against Iran. This caused a wave of risk aversion, leading to declines in European stocks and US equity futures, while Asian markets faced larger losses. The Swiss Franc (CHF) performed well, even after the Swiss National Bank cut its policy rate to zero. In contrast, the Norwegian Krone (NOK) fell after the Norges Bank unexpectedly reduced rates by 25 basis points and hinted at future cuts. Crude oil and gold prices slightly increased, while Treasurys held steady.

FOMC And Inflation Forecasts

The Federal Open Market Committee (FOMC) chose to keep its policy the same, adjusting its economic forecasts to predict slightly higher inflation and slower growth. This shift is reflected in US data and a recent survey from the US Business Roundtable, which revealed that CEOs’ economic outlook has dropped to its lowest since late 2020. Progress on US trade deals is currently slow, with the 90-day pause on reciprocal tariffs ending in less than three weeks. The forthcoming Juneteenth holiday in the US is likely to reduce market activity. With no significant data expected from North America soon, all eyes are on Japan as it releases its May Consumer Price Index (CPI) data later tonight. The US Dollar’s strength is driven by news of possible military involvement in the Middle East, suggesting a move towards safety rather than confidence in policy changes. Typically, geopolitical tensions push investors towards safe havens, causing declines in equity indices and risk-sensitive currencies. This indicates a potential return of risk-off trading, even if temporary. This environment is not suitable for high-leverage bets that depend on global equity strength or returns from riskier currencies. Investors are returning to safe-haven assets, and although the Japanese Yen usually fits this category, the Swiss Franc is currently showing stronger performance—despite its zero-rate policy—emphasizing the importance of preserving capital over seeking high yields. Beyond changes in European currencies, concerns remain following the Norwegian central bank’s decision to ease rates without clear signs of economic contraction yet. The market did not expect this change, leading to the NOK’s weakness. Future rate cuts have been hinted, and we will be monitoring local inflation and wage trends for confirmation. Until then, caution is advised for those exposed to Nordic currencies.

Market Sentiment And Trade Tensions

The slight uptick in crude oil and gold suggests that some market players are buying protection against further escalation, but the movement has not been significant. This indicates that traders are not yet convinced enough to push these markets into a breakout phase. This could change quickly if new political developments or shifts in inflation expectations arise. While the Federal Reserve has not changed rates, updated forecasts imply that inflation pressures may linger longer than anticipated while overall economic strength appears to be weakening. The Fed’s approach seems cautious rather than aggressive. For futures traders, this stabilizes Fed pricing but increases sensitivity to US data. The recent Business Roundtable survey shows corporate caution, with declines in capital expenditure plans, employment intentions, and sales expectations, meaning these indicators are now crucial to market sentiment. Trade tensions persist. As the three-month truce on reciprocal tariffs approaches its end, there is still no long-term solution in sight. Traders relying on supply chain dynamics or import/export strategies should minimize their exposure. The lack of clarity is detrimental to predictability in cross-border transactions, not just short-term surprises from Washington. With the US Juneteenth holiday approaching, we expect decreased trading activity. There are no major US economic reports expected this week, which makes international developments more significant. Attention will shift to Japan as it releases its key CPI data for May. Given the Bank of Japan’s challenges in normalizing policy while inflation hovers around its 2% target, these figures could affect JPY pairs and overall sentiment for central banks in the Asia-Pacific region. It’s wise to limit exposure to volatile assets during low liquidity periods and to frequently reassess positions, especially those linked to currencies and commodities that respond quickly to geopolitical and inflation signals. While there may not be sudden moves ahead, focusing on position sizes and monitoring global CPI releases and central bank guidance is advisable. Create your live VT Markets account and start trading now.

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