📊 Geopolitical tensions boost demand for AUD

The Australian dollar (AUD) closed at 0.64700 on Tuesday, recovering as rising oil prices supported demand for commodity-linked currencies. The surge in crude oil prices was fuelled by escalating geopolitical tensions in the Middle East, which usually benefits the currency due to Australia's strong trade ties to global commodity markets.

👉 Possible effects for traders

Market sentiment remained cautious as the conflict between Israel and Iran continued for a sixth straight day. U.S. President Donald Trump intensified his rhetoric, demanding Iran's unconditional surrender and signalling potential U.S. intervention. This heightened geopolitical risk pushed oil prices higher, bolstering the Australian dollar. However, AUD's rise may be limited in the near term as broader risk-off sentiment continues to dominate global markets amid the ongoing hostilities.

On the domestic front, Australia's Leading Economic Index declined by 0.1% in May, pointing to a sluggish and uneven economic recovery. Investors are now focused on Thursday's labour market report, which should offer insights into employment trends and help shape expectations for future monetary policy decisions by the Reserve Bank of Australia. A strong jobs print could provide near-term support for the Australian dollar and potentially shift the outlook on interest rates.

AUDUSD moved higher during Asian and early European trading sessions. Two significant events could significantly impact this pair today: the U.S. Jobless Claims report at 12:30 p.m. UTC and the Federal Reserve (Fed) interest rate decision at 6:00 p.m. UTC. These data releases will give the market insights into the Fed's future policy direction.

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📊 Euro falls sharply pressured by safe-haven demand

The euro (EUR) fell by 0.69% against the U.S. dollar (USD) on Wednesday, holding on to recent gains as markets awaited the Federal Reserve's (Fed) monetary policy decision.

👉 Possible effects for traders

Tuesday’s nearly 1% euro slump was largely driven by renewed safe-haven demand amid intensifying conflict between Israel and Iran. The situation escalated further after U.S. President Donald Trump demanded Iran's 'unconditional surrender'. He also threatened a direct strike against Supreme Leader Ali Khamenei in posts on Truth Social, injecting volatility into global markets.

Traders are also watching upcoming U.S. housing figures and weekly jobless claims data, which will come out today. Meanwhile, May retail sales came in below expectations, though underlying consumer demand remained relatively solid, buoyed by strong wage growth and a resilient labour market—factors that could complicate the Fed's outlook.

EURUSD rebounded during the Asian and early European trading sessions. Today, the market focuses on the Fed interest rate decision and Jobless Claims report. Analysts expect the Fed to leave interest rates unchanged amid ongoing inflationary pressures. Still, investors will pay more attention to the Fed's updated economic projections and any signals about how policymakers interpret the potential impact of Trump's policies on the broader economic outlook.

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📊 Gold awaits Fed's interest rate decision

Gold (XAU) slipped to around $3,380 on Tuesday as a firmer U.S. dollar weighed on prices. The metal pulled back despite heightened risk sentiment in global markets as investors continued to digest developments in the Middle East.

👉 Possible effects for traders

The conflict between Israel and Iran continued for the sixth consecutive day, with Israel confirming fresh strikes near Tehran and reporting missile launches originating from Iran. U.S. President Trump convened a meeting with his national security team, fueling speculation that Washington may deepen its involvement in the conflict. This raised concerns about a broader regional escalation that could impact global markets.

Amid these geopolitical risks, investors are also closely watching the Federal Reserve's (Fed) upcoming policy decision. While the central bank is expected to leave interest rates unchanged, market participants are looking for signals on the future rate trajectory. Supporting the long-term outlook for gold, a recent World Gold Council survey revealed that 95% of central banks expect global gold reserves to rise the next year, with a record 43% planning to increase their own holdings.

XAUUSD rose slightly during the Asian and early European trading sessions. Today is the week's most important event—the Fed interest rate decision at 6:00 p.m. UTC. Traders expect the Fed to leave its base rate unchanged in the 4.25–4.5% range. The decision itself may not affect the market, but new details in the Statement and during the press conference may cause volatility in USD. Traders will pay close attention to the economic outlook and the so-called 'dot plot' to understand the central bank's policy trajectory. The dot plot is a chart that visually represents the projections of each FOMC member for the target range of the federal funds rate. If the Fed downgrades its economic forecast and the FOMC dots median decreases while the Fed Chair hints that more rate cuts are coming, XAUUSD will rise. If the FOMC Statement includes better economic assessments, the dots median rises, and Jerome Powell sounds less dovish or even hawkish, XAUUSD may drop significantly.

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📊 Japanese yen weakens despite safe-haven inflows

The Japanese yen (JPY) weakened against the U.S. dollar (USD) on Thursday, approaching a three-week low. USDJPY rose as the U.S. dollar (USD) gained strength following the Federal Reserve's (Fed) latest policy update.

👉 Possible effects for traders
The Fed held rates steady but maintained a data-dependent stance, signalling that monetary policy decisions would depend on economic conditions. Investors interpreted the central bank's cautious tone and emphasis on inflation risks—particularly those from U.S. President Donald Trump's tariffs—as supportive of the U.S. dollar, which, in turn, weighed heavily on the yen. Safe-haven dynamics also played a significant role in currency flows. Despite escalating geopolitical tensions in the Middle East, the U.S. dollar outperformed the yen as the preferred safe-haven asset. This shift suggests that investors are prioritising yield differentials and USD relative strength over traditional safe-haven behaviour, particularly as the greenback benefits from higher interest rate expectations and stronger economic resilience.

Meanwhile, the Bank of Japan (BoJ) left its monetary policy unchanged on Tuesday, reiterating its commitment to a gradual and cautious normalisation path. BoJ Governor Kazuo Ueda emphasised that while the bank remains vigilant regarding domestic inflation and external risks, any potential rate hikes would be modest and depend on sustained price pressures. This divergence in policy outlook between the Fed and the BoJ has widened yield differentials, further contributing to the yen's weakness against the U.S. dollar.

USDJPY fell slightly during Asian and early European trading sessions. Today's macroeconomic calendar is relatively uneventful, so the probability of significant price movements is low. Traders should watch the critically important 145.500 level, as a break above it could trigger a major upward movement.

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📊 Euro consolidates after Fed interest rate decision

The euro (EUR) remained unchanged on Wednesday, consolidating near 1.15000, as markets digested the latest Federal Reserve (Fed) interest rate decision and economic forecasts.

👉 Possible effects for traders
As expected, the Fed held interest rates steady but emphasised a cautious, data-driven approach. This stance supported the U.S. dollar, particularly as investors reassessed the likelihood of near-term monetary easing in light of persistent inflationary pressures. Fed Chair Jerome Powell acknowledged the risk of higher inflation in the coming months, attributing part of the potential increase to U.S. President Donald Trump's trade tariff policies. These measures could increase import costs, complicating the Fed's task of balancing inflation control and economic support. While Powell refrained from committing to a specific rate path, his remarks reinforced the view that the Fed will remain flexible in response to evolving economic data.

In a notable shift, the central bank downgraded its U.S. growth outlook and projected two 25-basis-point rate cuts in 2025, catching markets off guard. Many traders had anticipated only one cut, prompting a swift repricing across interest-rate futures. Despite the dovish forward guidance, the U.S. dollar remained resilient, buoyed by its relative yield advantage and safe-haven appeal amid geopolitical uncertainty.

EURUSD rose during Asian and early European trading sessions. Today's formal macroeconomic calendar is relatively uneventful, so volatility is likely to be low. Still, investors should closely monitor potential U.S. involvement in the Middle East conflict. Some reports indicate that Washington is preparing for a possible military strike on Iran, raising fears of broader regional escalation. Key levels to watch are support at 1.14000 and resistance at 1.15000.

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📊 Dovish rhetoric puts downward pressure on gold

Gold prices (XAU) fell towards $3,370 on Wednesday after Federal Reserve (Fed) Chairman Jerome Powell made dovish statements.

👉 Possible effects for traders
As expected, the Federal Open Market Committee (FOMC) left the benchmark fed funds rate unchanged at 4.25–4.5% while acknowledging that economic uncertainty has somewhat eased but remains elevated. Notably, the committee dropped previous remarks of a rising risk of both higher unemployment and inflation, signalling a more balanced, though still cautious, policy stance. The Fed Chair warned that inflation is expected to rise significantly in the coming months, largely due to the recent increases in trade tariffs. He noted trade tariffs could have more persistent effects on price levels than previously anticipated.

In its updated projections, the FOMC revised its 2025 U.S. GDP growth estimate towards 1.4%, from 1.7% in March, reflecting growing concerns about economic momentum. At the same time, the central bank raised its 2025 core inflation forecast towards 3.1% from 2.8%, underlining the impact of external cost pressures, including trade-related factors. The Fed's dot plot maintained its outlook for two rate cuts by the end of 2025, with a median fed funds rate projection of 3.875%. While the Fed remains open to easing, it proceeds cautiously in the face of evolving inflation dynamics.

XAUUSD continued to fall during Asian and early European trading sessions. Today's macroeconomic calendar is rather uneventful, but traders should monitor any developments around trade tariffs. Key levels to watch for XAUUSD are support at $3,360 and resistance at $3,400.

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