Tensions in the Middle East persisted over the weekend, with renewed concerns surrounding the Israel-Iran situation impacting global markets. Crude oil prices initially surged by approximately 5% at the start of trading due to fears over potential supply disruptions, though gains were later pared as sentiment steadied. Equity markets in Europe, along with U.S. futures, are currently indicating a more optimistic open. Meanwhile, the U.S. dollar has retraced some of its Friday strength, with both the pound and euro beginning the session on firmer footing.
Comments from President Donald Trump have added a political dimension to market considerations, as he suggested potential U.S. involvement in regional tensions, while also expressing hope for a diplomatic resolution between the two nations. Reports have also emerged that Trump blocked an Israeli operation targeting Iran’s Supreme Leader, Ayatollah Ali Khamenei. Geopolitical developments in the region are likely to remain a dominant influence on investor sentiment in the near term.
Looking ahead, key central bank decisions are set to drive market direction this week. Both the Federal Reserve and the Bank of England are widely expected to maintain their current policy rates. Attention will be focused on their forward guidance, particularly in the context of ongoing trade discussions and rising geopolitical risks, which are likely to shape their future policy stance.
In terms of economic data, retail sales figures from both the U.K. and U.S. are due in the coming days, providing insight into how consumer behavior is being affected by uncertainty around tariffs and global developments.
Midweek, the U.K. will also release inflation figures for May. Expectations are for a broad-based decline across headline CPI, core inflation, and services CPI. Following last week’s disappointing economic releases from the U.K., a weaker inflation print could further solidify market expectations for an earlier-than-anticipated rate cut by the Bank of England—potentially as soon as August—thereby placing additional downward pressure on sterling.
