Investors and foreign-exchange traders remain focused on changes in the geopolitical situation in the Middle East. Over the weekend, the United States paused its strikes on Iranian infrastructure, while US Ambassador to the United Nations Mike Waltz said on Fox News Sunday that President Donald Trump was giving diplomatic negotiations some room. Reports linked the decision partly to concerns about the number of available targets and munitions, although Waltz rejected claims that the United States was facing a critical shortage of weapons.
Iranian officials subsequently said the country would also halt retaliatory operations for as long as the US pause remained in place. The development raised hopes that the sides could reach a compromise without another escalation. However, the prospects for a lasting settlement remain uncertain because negotiations are continuing primarily through intermediaries.
June US durable goods data were mixed. New orders rose by 0.3% after a revised decline of 4.0% in May. Excluding transportation equipment, orders increased by 0.6%, while orders excluding defence rose by 0.3%. Core capital goods orders excluding aircraft, a closely watched indicator of business investment, increased by 0.9%, suggesting that corporate spending remained relatively resilient.
Eurozone
The euro is strengthening against the pound while showing mixed performance against the US dollar and the yen.
Germany’s July business sentiment figures were positive. The Ifo Business Climate Index increased from 85.7 to 86.6 points, exceeding market expectations. The Business Expectations Index rose from 84.3 to 86.7, while the Current Assessment Index declined from 87.0 to 86.5.
Commenting on the figures, Ifo Institute President Clemens Fuest said that German companies had become less pessimistic despite continued uncertainty surrounding the Persian Gulf.
European Central Bank officials have also maintained a relatively hawkish tone. Slovak central bank Governor Peter Kazimir said that the regulator would probably need to raise interest rates at least once more to contain inflation, even if the economic outlook improved. ECB Chief Economist Philip Lane described the current inflation shock as moderate rather than severe and said inflation could return to the 2.0% target in about a year, provided that price pressures did not become persistent.
United Kingdom
The pound is losing ground against its major counterparts, including the euro, the yen and the US dollar.
The Confederation of British Industry reported an improvement in its retail sales balance, which rose from –54 to –26 points, significantly outperforming the forecast of –45. The result indicated the slowest decline in retail sales since January.
Nevertheless, a full reversal of the trend remains unlikely in the near term because elevated prices and operating costs continue to put pressure on household budgets and consumer demand. The CBI urged the government of new Prime Minister Andy Burnham to support economic growth by reforming business rates and addressing rising labour costs faced by retailers.
Japan
The yen is strengthening against the pound while showing mixed performance against the US dollar and the euro.
Investors are assessing Japan’s Services Producer Price Index, which rose by 3.2% year-on-year in June after a revised increase of 3.4% in May. The index remained above the Bank of Japan’s 2.0% inflation target.
Transportation and postal service prices increased by 5.3% from a year earlier. Higher fuel costs and Middle East-related supply disruptions continued to support elevated ocean and air freight rates.
The figures reinforce expectations that the Bank of Japan may continue tightening monetary policy over the medium term. Most analysts expect the regulator to keep the policy rate at around 1.0% at its meeting on Friday while signalling that another increase remains possible later in the year.
Australia
The Australian dollar is strengthening moderately against the euro and the pound while showing mixed performance against the yen and the US dollar.
In the absence of major domestic economic releases, price movements are being driven primarily by external factors. On Wednesday at 03:30 (GMT+2), investors will focus on second-quarter inflation data.
The Reserve Bank of Australia’s latest baseline forecasts indicate that annual headline inflation could reach approximately 4.8% in the June quarter, while trimmed mean inflation may remain near 3.8%. Both measures would remain above the central bank’s 2.0–3.0% target range.
An inflation reading close to these estimates would reinforce expectations that monetary conditions may need to remain restrictive and could support the Australian dollar. A weaker-than-expected result, however, would reduce the likelihood of further near-term tightening.
Oil
Oil prices are under pressure following the temporary pause in military strikes between the United States and Iran, which has raised hopes for a new round of diplomatic negotiations.
However, analysts warn that the decline in crude prices could prove temporary because traffic through the Strait of Hormuz and the Bab el-Mandeb Strait remains severely restricted. Similar supply and shipping risks were examined in FORECK.INFO’s recent US dollar, euro, pound, yen and oil market overview.
According to Kpler shipping data, fewer than ten vessels a day passed through the Strait of Hormuz over the weekend. Only 11 commodity-carrying vessels passed through the Bab el-Mandeb Strait on Sunday, the lowest daily total in several months.
Continued disruption along these strategically important transport routes could keep physical oil supplies tight over the medium term and provide renewed support to crude prices, even if diplomatic progress temporarily reduces the geopolitical risk premium.
