Investors and forex traders remain focused on rising geopolitical tensions in the Middle East. The chances of a quick diplomatic resolution to the U.S.–Iran conflict, which both sides had actively hinted at on Friday, have sharply declined. A 60-day ceasefire had been expected to allow negotiations on Iran’s nuclear program, but both sides continued mutual attacks instead. U.S. President Donald Trump, in an interview with Fox News, said he was in no hurry to sign a peace agreement and also mentioned the possibility of intensified military action if no compromise is reached.
Meanwhile, more Federal Reserve officials are shifting toward hawkish rhetoric. Kansas City Federal Reserve President Jeffrey Schmid said that inflation staying above the target level for too long is the main problem for the U.S. economy and that new measures to limit it should be considered. Fed Vice Chair Michelle Bowman, whose monetary policy views are considered among the softest, noted that the current energy shocks could change her position.
Eurozone
The euro is weakening against the pound and the U.S. dollar but showing mixed dynamics against the yen. Today, May manufacturing activity data from European countries was published and was generally positive. The EU index fell from 52.2 points to 51.6 points, less than experts had expected at 51.4 points, while Germany’s indicator declined from 51.4 points to 50.1 points against forecasts of 49.9 points. Analysts note that the data is being pressured by a significant drop in demand for goods, as well as supply chain disruptions that have already pushed raw material costs to a four-year high. Meanwhile, according to the European Central Bank’s monthly survey of inflation expectations, consumer sentiment has not worsened despite the April consumer price index rising to 3.0%. Most citizens still expect the average indicator to reach 4.0% in 12 months, while the three-year estimate may reach 2.9% instead of 3.0%.
United Kingdom
The pound is weakening against the U.S. dollar and the yen but strengthening against the euro.
Today, May manufacturing activity data was published: the index rose from 53.7 points to 53.9 points, reaching its highest level since June 2022. Experts warn investors that the increase in demand is most likely linked to expectations of further price growth and tighter monetary policy, after which the situation may worsen, especially if the U.S.–Iran conflict is not resolved soon.
Meanwhile, the May house price index from Nationwide Building Society fell from 0.4% to –0.6% month-on-month, compared with expectations of –0.1%, and from 3.0% to 1.7% year-on-year. The negative dynamics were recorded for the first time since December, as demand in the sector has fallen sharply amid economic uncertainty caused by the U.S.–Iran conflict. At the same time, Bank of England Governor Andrew Bailey said today that the regulator is closely monitoring public sector wage growth as a potential source of inflationary pressure.
Japan
The yen is strengthening against the pound, weakening against the U.S. dollar, and showing mixed dynamics against the euro.
Investors are assessing the May manufacturing PMI, which declined from 55.1 points to 54.5 points. The reading remains high enough to indicate stability in the industrial sector even amid the global energy crisis. However, capital investment in the first quarter stood at 0.0% instead of the expected 4.1% increase, stopping for the first time after a year of growth, which may negatively affect forecasts for the national economic recovery.
Australia
The Australian dollar is weakening against the pound, the yen, the U.S. dollar, and the euro.
Today, May manufacturing activity data was published: the index declined from 51.3 points to 50.7 points, remaining above the expected 50.2 points. Overall, pressure on the national economy, which is heavily dependent on energy supplies, is increasing. Experts note that if the situation does not stabilize soon, Reserve Bank of Australia officials may abandon another interest rate hike in favor of keeping rates at their current level for longer.
Oil
Oil prices rose sharply today after Tehran decided to halt peace consultations with the United States and fully close the Strait of Hormuz and possibly the Bab el-Mandeb Strait to shipping. According to Iran’s state news agency Tasnim, these measures were taken in response to Israel’s ongoing attacks on Lebanese territory. Earlier, representatives of the Islamic Republic had insisted that resolving the Lebanon–Israel conflict should be part of a broader peace deal with the White House, and now they refuse to continue negotiations until this condition is met. The escalation is increasing investor concerns about a deeper global crude oil shortage, supporting prices.
