Preliminary June business activity data released yesterday were stronger than expected. The manufacturing index rose from 55.1 points to 55.7 points, compared with expectations for a decline to 54.6 points, while the services index increased from 50.7 points to 51.3 points, above the forecast of 51.1 points. As a result, the US economy continues to recover, the labour market remains stable, and inflation is above the Federal Reserve’s 2.0% target: the May Consumer Price Index reached 4.2%. Under these conditions, further monetary policy tightening appears increasingly likely and could take place as early as September. Meanwhile, according to a study by the Federal Reserve Bank of Dallas, the rise in oil prices to 120.00 due to the closure of the Strait of Hormuz reduced output by around 0.3%, which is much smaller than the decline seen during the Iranian crisis of the 1980s, when the country was more dependent on crude oil imports. Analysts note that, as a hydrocarbon exporter, the United States is now facing mixed consequences from the conflict: on the one hand, higher gasoline prices negatively affect consumers, while on the other hand, energy-sector companies are seeing increased profits.
Eurozone
The euro is weakening against the yen and the US dollar but is showing mixed dynamics against the pound.
June business climate data from Germany released today were positive. The headline index rose from 85.0 points to 85.6 points, matching forecasts; the current economic conditions sub-index increased from 86.1 points to 87.0 points, compared with expectations for a decline to 86.0 points; and the business expectations indicator rose from 83.9 points to 84.1 points, although this was below the preliminary estimate of 85.0 points. Commenting on the data, IFO Institute President Clemens Fuest stated that German businesses remain hopeful that global geopolitical tensions will ease. Analysts also expect the effects of the confrontation in the Persian Gulf to weaken soon, supporting the recovery of the eurozone economy, although investors remain largely cautious for now.
United Kingdom
The pound is weakening against the yen and the US dollar but is showing mixed dynamics against the euro.
The political situation in the United Kingdom remains in focus. At the beginning of the week, Prime Minister Keir Starmer resigned, and his position is expected to pass to the leader of the Labour Party, with former Manchester Mayor Andy Burnham seen as the most likely candidate. This has made investors somewhat cautious, as they fear that the new head of government could abandon the current fiscal discipline, leading to higher budget spending and government borrowing and placing additional pressure on the national currency. However, the politician is trying to dismiss these concerns. Traders are also watching who will become the new Chancellor of the Exchequer, as Rachel Reeves intends to leave the government. The current leading candidate for the role is Health Secretary Wes Streeting, who has expressed strong support for businesses.
Japan
The yen is strengthening against the euro and the pound but is weakening against the US dollar.
May data on corporate service prices released today showed that the indicator remained at 3.3%, significantly above the Bank of Japan’s 2.0% target. This reflects stronger inflationary pressure and supports expectations of further monetary policy tightening. According to the summary of opinions expressed by policymakers at the latest meeting, most officials are concerned about accelerating price growth, as companies are actively passing higher costs on to consumers. As a result, some board members are calling for more active interest rate hikes to bring rates closer to levels that are neutral for the economy.
Australia
The Australian dollar is weakening against the yen and the US dollar but is showing mixed dynamics against the pound and the euro.
Investors remain focused on May inflation data. The weighted median Consumer Price Index declined from 4.2% to 4.0% year-on-year, compared with forecasts of 4.3%, while the core indicator rose from 3.4% to 3.6%, exceeding expectations. Overall, price pressures remain well above the Reserve Bank of Australia’s targets, allowing monetary authorities to continue tightening policy. This was also suggested by RBA Deputy Governor Andrew Hauser, who stated that policymakers need to counter rising prices and that even an end to the Middle East conflict would not guarantee a rapid resolution of the problem.
Oil
Oil prices are declining amid progress in talks between the United States and Iran and the recovery of oil transportation through the Strait of Hormuz. In addition, US President Donald Trump stated on his Truth Social platform that Tehran would not impose tariffs, insurance fees, or other charges on vessels passing through the key waterway. He also criticised the country’s energy companies, which he believes are not cutting gasoline prices quickly enough despite the significant decline in crude oil prices. Meanwhile, according to the American Petroleum Institute (API), fuel inventories fell by another 0.765 million barrels over the week, but this data was unable to halt the asset’s negative dynamics.
