By Enrique Diaz-Alvarez, Chief Financial Risk Officer of International Payment Company Ebury

Israel’s decision to bomb Iran to stop its nuclear program offered a lifeline to the dollar, which had fallen significantly until then due to concerns about the US economy and much lower than expected inflation.

However, the dollar recorded mixed performance, slightly retreating against most coins. This, however, is considered a “victory” in a week where the dollar broke the lows it had noticed after the “Liberation Day”.

Most importantly, market reaction highlighted the fact that the dollar still maintains part of its glamor as a safe haven In times of geopolitical tension, even if any of its other advantages are weakened. The winners of the week were the Swiss franc, which was significantly reinforced due to flows to safe shelters, and the Norwegian Corona, which is expected to benefit from oil prices.

This week, monetary policy decisions will try to distract from the news of the Israeli -Iran news. Its meeting US Federal Bank (Fed) the Wednesday is undoubtedly the top event of the week. Although interest rates are not expected, markets are eagerly awaiting the FED’s reaction to the slowdown in US economic data and, above all, to the extremely positive inflation report for May. This report shows no sign of duty price increases – while Trump’s pressure on interest rate cuts are exacerbated.

The next day, the Bank of England meets just hours after the publication of the basic consumer price index for May. However, there will be any surprises from the front of Trump’s duties and posts on social networks. All of this makes up the setting for an unusually volatile week in currency markets.

Sterling

The recent data flow from United Kingdom were obviously weaker. The May market report showed clear signs of weakening, recording the greatest net loss of jobs from the pandemic and a sharp increase in unemployment benefits. GDP and industrial production of April were also below expected. Within this context, the Bank of England is expected to keep interest rates unchanged this week. However, in the absence of a strong inflation report, the Monetary Policy Committee (MPC) may well signal that the next reduction will come before autumn. Weak macroeconomic elements and geopolitical uncertainty proved to be a bad combination for the pound, which lost part of the recent profits it had made on its recent upward trend.

Euro

Last week was very quiet in terms of news from the eurozone, and so is expected to apply. The euro initially reinforced Important in response to weak inflation in the US, but Israel -Iran war cut off his rise. At present, there are no catalysts that can lead it higher, at least this week. Export and industrial production data are significantly affected by the temporary “jump” to exports to the US, prior to duties, and subsequent recession. This means that it will take a few more weeks to have a clear picture of their impact on the eurozone economy.

US dollar

OR much -awaited inflation report for May not showed no effect from Trump duties And he was much weaker than expected. The key proposal increased by only 0.1% against expectations for 0.3%, making it a significant and rare deviation. Weekly unemployment benefits continue to grow gradually, contradicting the April employment report. Although the data is mixed, the overall conclusion is that the demand is slowing down, the labor market relaxes and businesses absorb the costs of duties instead of conveying price increases to consumers to maintain their market share. The Fed meeting this week is expected with great interest, mainly to determine to what extent this data affects its estimates of inflation, growth and potential interest rates – of which purchases already discount two such reductions in 2025.