A wave of volatility swept through global currency and commodity markets as geopolitical tensions in the Middle East showed signs of easing and robust US economic data shifted expectations for central bank policy. The Euro (EUR/USD) rebounded from three-month lows at 1.1499 to 1.1540 on Monday, buoyed by US President Donald Trump's calls for an immediate ceasefire between Israel and Iran, which helped calm investor nerves and trimmed recent US Dollar (USD) gains [1]. Similarly, the New Zealand Dollar (NZD/USD) rose 0.62% to 0.5830, benefiting from reduced safe-haven demand for the USD after Iran announced an end to military operations against Israel, though it warned of retaliation if hostilities resumed [2].
US labor market data released on Friday showed Nonfarm Payrolls rising by 172K in May, surpassing expectations of 85K, with April's figure revised up to 179K from 115K [1][2]. The unemployment rate remained steady at 4.3% [2]. These figures reinforced the narrative of US economic resilience, prompting speculation that the Federal Reserve may tighten monetary policy later this year, which has supported the USD and driven Treasury yields higher [1][3][5]. Societe Generale's Kit Juckes noted that the strong labor data challenges expectations for a weaker dollar under President Trump, especially as the US economy outperforms Europe and Asia, which are grappling with higher energy prices [3].
In the Eurozone, the Sentix Investors’ Confidence Index ticked up in June but remained below pre-conflict averages, and German Industrial Orders fell sharply, clouding the regional outlook [1]. Brown Brothers Harriman (BBH) expects the European Central Bank (ECB) to end its seven-meeting pause with a 25 basis point hike to 2.25% this week, citing persistent inflation pressures—core CPI hit a 13-month high at 2.5% y/y and services CPI reached 3.5% y/y in May [6]. However, BBH anticipates the ECB will downgrade its growth forecast, with PMI data suggesting Eurozone GDP could contract by -0.2% q/q in Q2, and expects EUR/USD to fall to 1.1400 due to the stronger US outlook [6].
The Canadian Dollar (CAD) underperformed, pressured by expectations that the Bank of Canada (BoC) will hold rates steady at 2.25% despite May CPI rising 2.8% y/y and a strong labor market report showing 87.8K jobs added [4]. Q1 GDP slipped -0.1% q/q annualized, marking a technical recession, and CAD net short positions surged 36% to the highest since December 2025, making it the second-worst performing G10 currency in May [7]. Nonetheless, markets are pricing in around 1.25 BoC hikes by year end, which could offer medium-term support [7].
Gold (XAU/USD) extended its decline, dropping over 4% in two days to a two-month low of $4,268, as investors favored the USD and higher Treasury yields over the precious metal's safe-haven appeal [5]. Technical indicators for both EUR/USD and XAU/USD suggest persistent downside momentum, with the Euro facing resistance at 1.1580 and Gold breaching its 200-day SMA, reinforcing a bearish outlook [1][5].
Looking ahead, markets are focused on upcoming US Consumer Price Index (CPI) data and central bank decisions, including the ECB and BoC, which are expected to shape the next phase of currency and commodity market moves [2][4][5][6].
CONCLUSION
Markets responded sharply to easing Middle East tensions, strong US jobs data, and shifting central bank expectations, with the US Dollar and Treasury yields rallying while the Euro, Canadian Dollar, and Gold faced pressure. Despite some regional economic resilience, the outlook remains cautious as investors await key inflation data and policy decisions that will determine the next direction for global markets.