The US Dollar (USD) saw gains in overnight trading amid reports of potential US military action against Iran. Markets displayed risk aversion, with European stocks and US equity futures declining and Asian markets experiencing heavier losses.

The Swiss Franc (CHF) is performing well despite the Swiss National Bank reducing its policy rate to zero. The Norwegian Krone (NOK) has declined following the Norges Bank’s unexpected 25 basis point rate cut, with hints at possible future cuts. Meanwhile, crude oil and gold prices have seen modest increases, although Treasurys remain steady.

FOMC And Inflation Forecasts

The FOMC kept its policy unchanged, with economic forecasts adjusting to anticipate slightly increased inflation and reduced growth. This is evident in US data and the US Business Roundtable’s recent survey, which reports a decline in CEOs’ economic outlook to its weakest since late 2020.

Progress on US trade deals is currently slow, with the 90-day reciprocal tariff pause concluding in under three weeks. The approaching Juneteenth holiday in the US is likely to result in lighter session activity. With no new data from North America expected, the focus shifts to Japan’s release of May CPI data later in the evening.

With the US Dollar gaining momentum on the back of reports around potential military involvement in the Middle East, its strength appears fuelled more by a search for safety than by sentiment around policy change or macro fundamentals. There’s a familiar pattern here: heightened geopolitical noise tends to push market participants towards traditional safe havens, creating downward pressure on equity indices and cyclical currencies. The most direct takeaway is that risk-off flows might make a comeback, if only temporarily.

This isn’t a fertile environment for high-leverage directional bets that rely on global equity strength or exceptional carry from risk currencies. Flight-to-safety assets are seeing renewed interest, and while that typically includes the Japanese Yen, at this point, the Swiss Franc has emerged more strongly—odd, given the zero-rate move, but that speaks volumes about capital preservation over yield chasing right now.

Looking beyond European currency shifts, some concern lingers following the Norwegian central bank’s decision to ease despite no deep signs of economic contraction yet. The market hadn’t priced in such a change, and the Krone’s weakness is a direct reflection of that surprise. Future cuts have been subtly signalled, and we’ll be watching for confirmation in local inflation and wage dynamics. Until then, currency exposure to Nordic majors should be handled with added caution.

Market Sentiment And Trade Tensions

Crude oil and gold ticking higher confirms that some market segments are taking out insurance policies against further escalation—yet the move hasn’t been dramatic. That tells us the momentum is still shallow. Commodities traders don’t yet see enough conviction to push these markets into breakout territory. This could change overnight or in subsequent sessions, especially if further political headlines unfold or inflation expectations shift.

Though the Federal Reserve has stood pat on rate changes, updated forecasts hint that inflationary pressures may last a touch longer than expected, while overall economic strength may fade. The Federal Open Market Committee’s actions are clearly aligned with keeping conditions watchful rather than aggressive. For futures traders, that sets up a scenario where Fed pricing remains well-anchored, but sensitivity to US data will likely rise. This is particularly important given the context: the latest survey from the Business Roundtable paints a picture of corporate caution—capital expenditure plans, employment intentions, and sales expectations are all drifting lower. These aren’t secondary indicators anymore; they are leading sentiment, especially when current data is mostly aligned with them.

Trade tensions have not gone away. With the three-month truce on reciprocal tariffs nearing its expiry, there’s still no evidence of a long-term framework. Traders who rely on supply chain momentum or import/export plays should already be narrowing their exposure. It’s not about short-term surprises coming out of DC; it’s about a broader absence of clarity, which chips away at predictability in cross-border flows.

As the US heads into the Juneteenth holiday, we’re anticipating reduced participation in upcoming sessions. There’s no major economic data set to disrupt things from North America this week, which increases the weight of any international developments. Specifically, attention will turn east as Japan releases key CPI figures for May. Given the Bank of Japan’s ongoing struggle to normalise policy while inflation hangs just on the margins of their 2% target, these figures could have ramifications not just for JPY pairs, but for broader sentiment around central banks in the Asia-Pacific region.

We should be limiting exposure to volatility-prone assets in times of thin liquidity and reassessing positions more frequently, particularly those tied to currencies and commodities that react quickly to both geopolitical shifts and inflation signals. No abrupt moves forward, but a sharper focus on position sizing and a closer eye on global CPI printouts and central bank guidance appears warranted.

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