U.S. President Trump said on Saturday (June 21) that the U.S. military had "successfully struck" three Iranian nuclear facilities. With the U.S. striking Iran over the weekend, tensions in the Middle East are bound to escalate again, and we need to be prepared for a sharp rebound in gold prices, oil prices, and the U.S. dollar at the beginning of the week. Last week, global financial markets were shaken violently by the dual influence of the Fed's hawkish stance and geopolitical tensions. The Fed announced last week that it would maintain the current interest rate unchanged, but its policymakers hinted that there is still room for borrowing costs to fall this year. However, Fed Chairman Powell clearly warned at a press conference that the market should not expect too much from the possibility of a rate cut. The Fed's high alert to inflation risks has reduced the possibility of resuming rate cuts, which puts direct pressure on gold prices. Because investors prefer to hold higher-yielding assets such as bonds or U.S. dollar-denominated assets.

In sharp contrast to the Fed's hawkish stance, geopolitical tensions have provided important safe-haven support for the U.S. dollar. The escalation of this conflict has not only exacerbated tensions in the Middle East, but also raised market concerns about the global security environment. As a traditional safe-haven asset, the U.S. dollar is often sought after when geopolitical risks rise.

The Trump administration's tariff policy is another focus of the market in recent times.

In the short term, the continued escalation of the conflict between Israel and Iran may continue to drive safe-haven funds into the gold and US dollar markets, but the direction of the Federal Reserve's monetary policy and the specific implementation of the Trump administration's tariff policy will have a key impact on the price of gold and its medium- and long-term trend.

Review of last week's market performance:

The three major U.S. stock indexes rose and fell last week, with the technology sector leading the decline, and the energy and defensive sectors slightly stronger. Under the influence of multiple uncertainties such as the Fed's release of differentiation signals, the complexity of the geopolitical situation and the increase in regulatory pressure, investors' risk appetite has obviously become more cautious, and the main indexes have maintained a shock consolidation pattern as a whole. The Dow Jones Index closed at 42,206.82; it was roughly flat last week. The S&P 500 Index closed at 5,967.84; it fell by about 0.2% for the whole week. The Nasdaq Composite Index closed at 19447.41 points; it fell by about 0.2% for the whole week.

Gold fell to about $3,340 an ounce on Friday, hitting a one-week low and posting its first weekly decline in three weeks, falling 1.86% to around $3,368 for the week. Investors sold gold to make up for losses in other markets as tensions in the Middle East escalated. Investors also focused on the White House, where President Trump is considering direct military action against Iran and is expected to make a decision within two weeks. Meanwhile, the Federal Reserve kept interest rates unchanged earlier last week and hinted at two rate cuts by the end of the year, although Chairman Powell warned that tariffs could continue to push prices higher. On the other hand, the US military "successfully struck" three Iranian nuclear facilities last week. With the United States striking Iran over the weekend, tensions in the Middle East are bound to escalate again, and it is necessary to prepare for a sharp rebound in gold prices at the beginning of the week. Last week, silver prices fell about 0.85% to $36,000 an ounce as traders took profits after a sharp rise in prices pushed prices above a 13-year high. Investors also sold precious metals to make up for losses in other areas as escalating conflicts in the Middle East triggered a broad sell-off. In addition, the confirmation of a major discovery in Argentina further fueled market sentiment - one of the largest copper, gold and silver deposits in three decades, estimated to contain 13.2 million tons of copper and more than 80 million ounces of gold and silver combined.

In the complex chess game of global economy and geopolitics, the US dollar is rising with amazing momentum and is expected to record the largest weekly gain in more than a month. The US dollar index closed around 98.75 last week, but remained on track to gain weekly gains.

Tensions in the Middle East have become the core driver of currency market fluctuations. The conflict between Israel and Iran has lasted for a week, and the air battle has been escalating, and market concerns about the possibility of the United States being involved in the war are growing. The US dollar index is expected to rise by 0.66% this week, showing a strong rebound momentum. It hit a new high of more than a week last week to around 99.16.

US President Trump said on June 21 that the US military had "successfully struck" three Iranian nuclear facilities. The market will initially panic and oil prices will open higher. Oil prices fell back on Friday, which provided support for currencies of economies that rely on oil imports, such as the euro and the yen. The euro rose 0.24% against the dollar on Friday to $1.1522, while the dollar fluctuated narrowly against the yen to 145.29 yen. Despite this, the volatility of oil prices still makes the market full of doubts about the inflation outlook.

Under the shadow of global risk aversion, currencies that are positively correlated with risk sentiment have performed differently. The Australian dollar and the New Zealand dollar both fell last week, while the British pound climbed 0.25% against the US dollar to 1.3500. In contrast, the Swiss franc performed poorly last week. Although the dollar was flat at 0.8160 against the Swiss franc, the Swiss National Bank's decision to cut interest rates to zero has caused the Swiss franc to record its largest weekly decline since mid-April.

WTI crude oil rose for the third consecutive week last week, closing at $73.35, up more than 3.0% for the week. The slight decline was caused by the easing of geopolitical tensions in the Middle East due to President Trump's decision to postpone potential US military intervention in Iran to allow time for possible diplomatic negotiations on the nuclear program. However, the situation remains fluid as Israeli Prime Minister Benjamin Netanyahu reportedly ordered an intensification of strikes against strategic and government targets in Iran. Despite the escalation in tensions, Iran has continued crude oil exports, reportedly loading 2.2 million barrels per day last week, the highest level in five weeks.

Bitcoin prices stabilized above $104,500 last week as Asia opened a new trading session. Despite the possibility of war in the Middle East, Bitcoin has been relatively stable with minimal market volatility. According to market data from CoinDesk, Bitcoin fell only 2% over the past full week. Despite the intensification of the armed conflict between Israel and Iran and the uncertainty ahead of the Federal Reserve's FOMC meeting that kept investors on the sidelines, Bitcoin had an overall lackluster performance last week, with prices stabilizing around $104,557. Despite strong ETF inflows, Bitcoin remained blocked below $105,000, with $105,150 forming repeated resistance. Institutional accumulation signals hedge against short-term bearish sentiment and macro volatility.
The yield on the 10-year U.S. Treasury bond rose to 4.43% on Friday as markets assessed the appropriate risk and term premium for U.S. debt, given fiscal risks and uncertainty over tariffs and geopolitical conflicts. Meanwhile, the lack of a trade deal with the European Union and major Asian trading partners supported investor concerns about whether mutual tariffs will be reintroduced on July 9.

Market Outlook This Week:

Will geopolitics really affect markets in the near term?

Markets are once again showing indifference to geopolitical uncertainty, which raises the question: Will it be different this time?

The answer is: not yet.

Despite the dramatic escalation in the Middle East, including Israel's strike on Iran's nuclear facilities, global market reactions have been fairly muted. So far, the reaction has been limited to commodities and regional stock markets.

In the last two weeks, oil prices jumped more than 10%, gold hit a record high, and Middle Eastern stocks fell. But elsewhere, investors remained calm. The MSCI World Index fell just over 1% after setting a record the day before. U.S. high-yield credit spreads widened by only 2 basis points. Inflation expectations, while rising on the day, are still trending downward for the week.

So what will cause geopolitics to have a broader impact on the market?

Historically, it has only had an impact when it affects macro variables such as growth and inflation, but at least so far, the market has not seen that.

This is in stark contrast to shocks such as the oil embargo in the 1970s, the Gulf War in 1990, or the Russian invasion of Ukraine in 2022, all of which triggered inflation spikes and forced central banks to respond. Today, oil prices are still below their average level in 2024, and the market has not priced in a broader economic shock.

Nevertheless, risks are accumulating. The market pointed to two potential flashpoints: the upcoming July 9 U.S. tariff deadline and the possibility of deeper oil supply disruptions. Both could reignite inflation concerns and challenge expectations for rate cuts.

The Middle East war is not over, and the dollar has become a safe-haven "darling"?

Tensions in the Middle East became the core driver of currency market volatility last week. The conflict between Israel and Iran has lasted for a week, and the air war has been escalating, and the market is increasingly worried about the possibility of the United States being involved in the war. The White House revealed that US President Trump will decide whether to intervene in the conflict in the next two weeks. This uncertainty has made investors nervous and flocked to the traditional safe-haven asset of the US dollar. The US dollar index showed a strong rebound last week, once hitting a new high of 99.16 in more than a week.

Although the White House's statement has soothed the market's concerns about the United States' immediate participation in the war to a certain extent, the possibility of an expansion of the Middle East conflict still suppresses the risk appetite of global investors. The surge in safe-haven demand has not only pushed up the US dollar exchange rate, but also cast a shadow on the market's outlook for the global economy.

The overall performance of the US dollar is still affected by the tariff issue. The market's concerns about the possible cost increases, corporate profit margin compression and slowing global economic growth caused by the US tariff policy have lingering, resulting in a cumulative decline of about 9% in the US dollar this year.

Last week, the global foreign exchange market was turbulent under the interweaving of multiple factors. The safe-haven demand caused by the Middle East conflict has pushed up the dollar. The volatility of oil prices and the shadow of tariffs have added uncertainty to the global economy. The policy choices of central banks have also made the market trend more confusing. Can the strong rise of the dollar continue? How will global central banks find a balance between inflation and growth? In the next two weeks, the US decision on the situation in the Middle East may be the key to determining the direction of the foreign exchange market. Investors need to pay close attention to geopolitical dynamics and central bank policy adjustments to cope with this challenging financial market environment.

Geopolitical conflict and the impact of the Fed's hawkish policy; gold prices hover at a "crossroads"

Last week, the US military "successfully struck" three Iranian nuclear facilities. With the US attack on Iran over the weekend, tensions in the Middle East are bound to heat up again, and it is necessary to prepare for a sharp rebound in gold prices at the beginning of the week.
Last week, gold prices fluctuated violently under the dual influence of the Fed's hawkish stance and geopolitical tensions, and are currently trading around $3,368/ounce.

The Fed's monetary policy has always been one of the core factors affecting gold prices. The Trump administration's upcoming tariff policy may push up commodity prices and cause inflation to pick up in the summer. Powell's hawkish statement has cooled market expectations for rate cuts. As a non-yielding asset, gold is under significant pressure under high interest rate expectations.

In sharp contrast to the Fed's hawkish stance, geopolitical tensions have provided important safe-haven support for gold prices. Israel's bombing of Iranian nuclear targets and Iran's missile and drone attacks on Israeli hospitals mark a further escalation of the week-long air war between the two sides.

The escalation of this conflict has not only exacerbated tensions in the Middle East, but also raised market concerns about the global security environment. As a traditional safe-haven asset, gold is often sought after when geopolitical risks rise. And President Trump said he would decide the role of the United States in the conflict in the next two weeks. This uncertainty has further pushed up the market's risk aversion and provided support for gold prices to stabilize at a low level.

The trend of the US dollar index also has an important impact on gold prices. A stronger dollar usually puts pressure on gold prices denominated in US dollars, because an appreciation of the US dollar increases the cost of buying gold for holders of non-US currencies, thereby suppressing demand.

Overall, the current trend of gold prices is affected by the complex game of multiple factors. The Fed's hawkish stance and the strength of the US dollar index put downward pressure on gold prices, while geopolitical tensions and rising inflation expectations provided upward support for gold prices. In the short term, the continued escalation of the conflict between Israel and Iran may continue to drive safe-haven funds into the gold market, but the direction of the Fed's monetary policy and the specific implementation of the Trump administration's tariff policy will have a key impact on the medium- and long-term trend of gold prices.

From a technical perspective, gold prices will definitely surge on this news at the beginning of this week, but may fall back in a few days. With the US's show of force and the complete destruction of Iran's nuclear capabilities, they have lost all their chips and are likely to press the exit button and reach a peace agreement. Gold prices found support at the psychological low of $3,300/ounce and encountered resistance at the high of the $3,400/ounce mark, indicating that there is a strong long-short game in the market near the current level. Investors need to pay close attention to the Trump administration's position on the Middle East conflict, the progress of the E3's diplomatic negotiations with Iran, and the Fed's latest statements on inflation and interest rates in the next two weeks. These factors will jointly determine whether gold prices can break through the current range of fluctuations and move to higher levels.

Tensions in the Middle East have peaked; will crude oil continue to rise or retreat?

U.S. President Donald Trump said on June 21 that the U.S. military had "successfully struck" three Iranian nuclear facilities. The market will initially panic and oil prices will open higher. WTI crude oil has shown signs of exhaustion after surging 30% in 10 days. As Trump weighs whether to intervene in the Israeli-Iranian conflict, traders face a key decision: should they buy the rally or sell the rallies?

While the news from the Middle East continues to heat up, oil prices have not continued to follow suit. However, crude oil prices are still high by recent standards and may remain so until a solution is found.

The market may not be eager to convert concerns into risk premiums. This may be due to the fact that macroeconomics have a greater impact on prices, and commodity exporters have been reluctant in recent years to use energy as a weapon as they did in the 1980s. In contrast, oil and gas have been sanctioned by importing countries throughout modern history.

A reasonable guess is that since Trump is said to be carefully considering the issue of US involvement in the next two weeks, this is both a warning to Iran and provides time for reaching an agreement. But the market believes that the United States will not intervene in the Israeli-Iranian conflict, which will trigger a round of risk appetite recovery. Wall Street indexes rose and oil prices fell. This may also allow traders to refocus their attention on the slowing US economy and short the US dollar based on the expectation of the Fed's interest rate cut.

Overall, the current crude oil market is in a complex pattern of "geopolitical risk disturbance + technical long-short game". But oil prices will rise sharply on Monday due to the news of US military actions, and may fall back afterwards. With the US show of force and the complete destruction of Iran's nuclear capabilities, they have lost all their chips and are likely to press the exit button and reach a peace agreement. Investors are likely to have passed the best stage of this round of gains. Unless Iran decides to cause serious damage to the Strait of Mandeb, it is difficult to see how oil prices can rise significantly from here. Especially considering that oil prices have been difficult to rise further last week. As the market is optimistic about a resolution within two weeks, it may be better to consider selling false breakouts on rallies rather than chasing an already overextended rally.

Conclusion:

Global financial markets are volatile due to the interweaving of multiple factors. The safe-haven demand caused by the conflict in the Middle East has pushed up the US dollar and depreciated the price of gold. The sharp fluctuations in oil prices and the shadow of tariffs have added uncertainty to the global economy. Investors and central banks must reassess this new reality. The policy choices of central banks in various countries have also made market trends more confusing. The market can no longer rely solely on the guidance of central banks. "This phenomenon of "model failure" means that market narratives, asset pricing and volatility trends will change more rapidly. Can the strong rise of the US dollar continue? How will global central banks find a balance between inflation and growth?

In the next two weeks, the US's decision on the situation in the Middle East may be the key to determining the direction of the foreign exchange market. Investors need to pay close attention to geopolitical dynamics and central bank policy adjustments to cope with this challenging financial market environment.

Overview of important overseas economic events and matters this week:

Monday (June 23): Eurozone June SPGI manufacturing PMI preliminary value; UK June SPGI service industry PMI preliminary value; US June SPGI manufacturing PMI preliminary value; US May existing home sales annualized total (10,000 households); ECB President Lagarde made an introductory speech at a hearing held by the European Parliament's Economic and Monetary Affairs Committee

Tuesday (June 24): Australia's ANZ Consumer Confidence Index for the week ending June 22; UK June CBI Industrial Orders Difference; US First Quarter Current Account (US$ billion); US June Conference Board Consumer Confidence Index; Fed Chairman Powell testifies on the semi-annual monetary policy report at the House Financial Services Committee: Bank of England Governor Bailey attends the House of Lords Economic Affairs Committee meeting

Wednesday (June 25): Australia Bureau of Statistics CPI annual rate in May - seasonally adjusted (%); US May building permit monthly rate revised value (%); US EIA crude oil inventory change for the week ending June 20 (10,000 barrels); Bank of Japan releases summary of opinions of review committee members at the June monetary policy meeting.

Thursday (June 26): UK CBI retail sales difference in June; US first quarter real GDP annualized quarterly rate final value (%); US May durable goods orders monthly rate initial value (%); US initial jobless claims for the week ending June 21 (10,000); US May wholesale inventory monthly rate initial value (%)

Friday (June 27): Japan Tokyo CPI annual rate in June (%); Japan May unemployment rate (%); Eurozone June consumer confidence index final value; US May PCE price index annual rate (%); Final value of the University of Michigan Consumer Confidence Index in June

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