Early Friday, Israel shocked global markets by launching airstrikes on Iran’s Natanz nuclear facility, confirming US signals that Israel was preparing for conflict, though Washington claimed no involvement. In response, Iran warned both Israel and the US that they would “pay a very heavy price,” escalating fears of a broader conflict.
The strike triggered a strong risk-off reaction in Asian markets. Crude oil prices surged over 9%, reaching a five-month high, while safe-haven assets such as gold, the Japanese yen (JPY), and the Swiss franc (CHF) gained. The US dollar also recovered from earlier losses tied to weak economic data.
Iran’s nuclear status likely prompted Israel’s direct action, supported by recent US statements: President Trump insisted Iran must not obtain a nuclear bomb, and Secretary of State Marco Rubio warned Iran against attacking US interests.
Adding to market stress, Trump extended 50% steel tariffs to home appliances (starting June 23) and hinted at higher auto tariffs. US Commerce Secretary Lutnick said the China tariff pause may soon end, while Treasury Secretary Scott Bessent criticized the EU’s stance in trade talks, further stoking trade tensions.
Weak US jobless claims and PPI data had earlier dragged the US Dollar Index (DXY) to a 39-month low. But geopolitical tensions helped the DXY rebound. EURUSD and GBPUSD pulled back from long-term highs amid EU-US trade war concerns and a stronger dollar. USDJPY hit weekly lows before recovering on mixed Japan data, while AUDUSD and NZDUSD fell. USDCAD struggled despite surging oil, Canada’s key export.
Gold extended its rally to a seven-week high. Meanwhile, Bitcoin (BTCUSD) and Ethereum (ETHUSD) fell for a third straight day, weighed down by risk-off sentiment.
EURUSD and GBPUSD surged to their highest levels since October 2021 and February 2022, respectively, boosted by a weaker US Dollar and technical breakouts. However, both pairs pulled back early Friday as the Dollar rebounded.
EURUSD faced added pressure from disappointing US-EU trade talks, mixed Eurozone data, and cautious comments from ECB officials, just ahead of key German and Eurozone economic reports.
GBPUSD also lost ground despite optimism around UK trade deals, as weak UK data on Thursday raised concerns about the Bank of England’s economic outlook.
Meanwhile, USDJPY fell to a one-week low as investors flocked to the safe-haven Japanese yen. It later recovered some losses due to mixed Japanese economic data—April’s drop in industrial production clashed with stronger capacity utilization and the Tertiary Industry Index.
Risk-off sentiment and a stronger US Dollar are dragging down commodity-linked currencies. AUDUSD and NZDUSD are both heading for weekly losses. USDCAD has bounced off an eight-month low, ignoring strong crude oil prices and US-Canada trade optimism, but still looks set to end the week lower.
Crude oil surged to a five-month high, gaining over 10% intraday before trimming gains to settle around $74, up nearly 7%. Iran’s key role as a major oil supplier drove the rally, along with a breakout above five-month resistance and falling inventories. However, gains were capped by rising OPEC+ output and Trump’s “Drill Baby Drill” push.
Gold climbed to its highest level since April 22, ignoring the US Dollar rebound, thanks to its safe-haven appeal. XAUUSD is testing a key resistance level, and a clear breakout could lead to a new all-time high. Strong global central bank demand and hopes around a US-China trade deal are also boosting gold prices.
A broad wave of risk aversion, combined with a rebound in the US Dollar and ongoing outflows from crypto ETFs, has led Bitcoin (BTCUSD) and Ethereum (ETHUSD) to decline for a third consecutive day. The cautious market mood and reduced investor appetite for riskier assets continue to weigh on major cryptocurrencies.
Markets will closely watch Iran’s response to Israel’s airstrike and its threats toward the U.S., as well as any shifts in Washington’s policy stance. Also on the radar are the preliminary readings of the University of Michigan’s Consumer Sentiment Index and Inflation Expectations for June, which could influence sentiment.
Mid-tier data from Germany, the Eurozone, and Canada will also be released, though they may have limited market impact unless significantly surprising. Meanwhile, any fresh updates on U.S. trade negotiations could act as additional market movers.
If U.S. data comes in strong and risk-off sentiment persists, the U.S. Dollar could end the week stronger, pressuring major currencies, commodity-linked Antipodeans, and cryptocurrencies. However, crude oil and gold are likely to stay firm and may attract more buying interest. On the other hand, weaker U.S. data—especially amid ongoing tariff uncertainty—could dampen the Dollar’s strength.
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