Market Sentiment Still Faces Uncertainty Amid Grand Geopolitical and Economic Shifts

The Middle East conflict intensified on June 12, 2025, when Israel launched airstrikes on Iran’s Natanz uranium enrichment facility, targeting military leaders. Iran retaliated swiftly, leading to a cycle of strikes that damaged government, health, and civilian infrastructure, with casualties on both sides. Iran’s refusal to halt its nuclear program, despite international calls, prompted the escalation.

Middle East Tensions Escalate

President Donald Trump heightened tensions by claiming U.S. control over Iranian airspace and signaling potential military involvement alongside Israel, particularly targeting the fortified Fordow nuclear site. North Korea condemned Israel’s actions and warned against further Western intervention. While Trump approved attack plans, a pause persists, contingent on Iran abandoning its nuclear ambitions. This ongoing crisis continues to weigh heavily on global market sentiment.

Trade Negotiations Falter

Global trade talks remain deadlocked as the July 9, 2025, deadline looms. President Trump’s announcement of 50% tariffs on EU imports, coupled with similar measures on Canadian steel and aluminum, has met resistance. The EU and Japan struggle to reach agreements with the U.S., with Trump citing unfair trade terms. Canada is preparing countermeasures, and without progress, retaliatory tariffs could disrupt markets further. These unresolved tensions are poised to dominate financial markets, amplifying investor uncertainty in the coming weeks.

Central Banks Signal Policy Shifts

The Federal Reserve maintained its policy rate at 4.25%-4.5% in June 2025, aligning with expectations. The updated Summary of Economic Projections indicated a 50 basis points (bps) rate cut for 2025 but reduced the 2026 forecast to 25 bps from 50 bps. Growth projections were downgraded, with higher unemployment and PCE inflation anticipated. Federal Reserve Chairman Jerome Powell emphasized a balanced labor market, resilient economy, and a modestly restrictive policy stance, showing no urgency for rate changes. Fed Governor Christopher Waller suggested a potential rate cut by July, citing minimal inflationary impact from tariffs but warning of labor market risks if rates
remain unchanged.

In Europe, the European Central Bank (ECB) signaled the end of its rate-cutting cycle after lowering the deposit facility rate to 2% in June. President Christine Lagarde described the ECB’s stance as “well positioned,” supported by officials like Luis de Guindos and Joachim Nagel, who noted economic resilience and neutral rate territory. However, Mario Centeno expressed caution, stressing the need for stronger economic growth to sustain 2% inflation. These developments supported the euro, with EUR/USD holding steady around 1.1500 despite earlier volatility.

Economic Data and Market Outlook

Recent economic indicators reflect mixed signals. Germany’s ZEW Economic Sentiment Index rose to 47.5 in June from 25.2, and the EU index climbed to 35.3 from 11.6. U.S. Retail Sales dropped 0.9% in May, worse than expected, while the Philadelphia Fed Manufacturing Survey remained weak at -4. Looking ahead, key releases include preliminary June PMI estimates, Powell’s congressional testimony on the Semiannual Monetary Policy Report, the final Q1 GDP estimate, and the May PCE Price Index. Powell’s testimony, particularly on Tuesday, could provide critical insights into the Fed’s future moves, shaping market expectations.

The EUR/USD pair remains technically bullish despite a corrective dip from its 2025 peak of 1.1631. Support lies at 1.1470 and 1.1435, with potential for a retest of the yearly high if it breaks above 1.1560. Geopolitical risks, trade uncertainties, and central bank policies will likely dictate market sentiment, urging investors to stay vigilant.