Geopolitical tensions surged as the United States and Iran exchanged military strikes, with Iran’s Islamic Revolutionary Guard Corps (IRGC) confirming attacks on US military bases in retaliation for earlier US strikes near Bandar Abbas airport. This marks the second US attack this week, targeting Iranian boats and missile sites, and has reignited concerns over stability in the Gulf region [1][2][4]. Kuwait authorities also reported intercepting hostile drone and missile attacks, further highlighting the regional escalation [2].
The British Pound (GBP) initially fell against the US Dollar (USD), reaching an intraday low of 1.3367, but later rebounded to near 1.3400 during the European session. However, the recovery is seen as fragile due to ongoing Middle East conflicts. UK gilt yields mirrored this volatility, recovering to 4.87% from a low of 4.81% after a weak opening, while traders have reduced expectations for a near-term Bank of England (BoE) rate hike amid weakening UK economic data [1].
The Euro (EUR) traded flat against the Pound, with EUR/GBP bulls unable to sustain gains above 0.8660 after a 0.4% rally in the previous two days. The common currency’s speculative demand faltered as market sentiment soured and oil prices jumped in response to the US-Iran escalation. Futures markets are pricing a 91% chance of a European Central Bank (ECB) rate hike at the June 11 meeting, while the BoE is not expected to tighten policy soon. ECB Chief Economist Philip Lane warned that inflationary consequences from the US-Iran conflict could outlast the hostilities, emphasizing the need to anchor inflation expectations [2].
In the US, Commerzbank’s Michael Pfister noted that if negotiations with Iran fail, market focus will shift to key US economic data releases, including the second estimate of Q1 GDP and PCE inflation readings. Recent hawkish rhetoric from Federal Open Market Committee (FOMC) members has raised expectations for further US rate hikes, but these expectations hinge on solid growth and inflation data. A disappointment in these figures could quickly reverse rate hike bets and weaken the US Dollar [3].
Elsewhere, the EUR/JPY cross lost momentum near 185.10 as safe-haven demand for the Japanese Yen increased following the US-Iran conflict escalation. Technical analysis indicates a mild bullish bias for EUR/JPY, with resistance at 185.65 and support at 184.70 and 184.40 [4]. Meanwhile, EUR/USD closed nearly unchanged at 1.1624, with analysts at UOB noting a mild downside bias but expecting the pair to remain rangebound between 1.1590 and 1.1685 in the near term [5].
CONCLUSION
The renewed US-Iran hostilities have injected significant volatility into global currency and bond markets, with safe-haven flows supporting the Japanese Yen and US Dollar, while the British Pound and Euro remain under pressure. Central bank policy expectations are diverging, and upcoming US economic data will be critical in shaping market direction. Overall, the market impact is high, with sentiment skewed negative amid persistent geopolitical risks.