The global financial markets experienced a rollercoaster week, with geopolitical tensions and economic data taking center stage. The week began with a pivotal moment in the Iran-US relationship, as President Trump announced a delay in planned military strikes, citing requests from Gulf allies for a diplomatic resolution. This move sent shockwaves through the markets, boosting risk sentiment and causing a retreat in the US dollar, while oil prices took a hit as the immediate threat of military escalation diminished.
Trump's afternoon remarks further fueled market optimism, suggesting a potential nuclear deal with Iran. However, his repeated claims of victory in the conflict have raised eyebrows among traders, who are now skeptical of his diplomatic efforts. This credibility gap has become a significant factor in market sentiment.
In the Asian session, the USD found some support, but not enough to prevent a decline against the AUD, NZD, GBP, and JPY. The USD/JPY pair approached the critical level of 159 before stabilizing, with Japanese authorities closely monitoring the situation, as they have previously indicated a willingness to intervene if the yen weakens further.
Japan's Q1 GDP growth exceeded expectations, expanding at an annualized rate of 2.1%, surpassing the forecasted 1.7%. This positive data point initially boosted the Nikkei, but analysts warn that the Iran war energy shock will likely impact Q2 growth. The technology-heavy Nikkei reversed its early gains, falling 0.64% by midday, while the broader Topix managed a slight gain of 0.37% as investors shifted their focus to economically sensitive sectors.
The Reserve Bank of Australia (RBA) made headlines with its May meeting minutes, revealing a unanimous decision to raise the cash rate to 4.35%. This move was seen as a cautious approach, allowing the RBA to assess the impact of the Iran conflict on the Australian economy. The minutes suggested a potential pause in June, but the August meeting remains a key event, contingent on the evolving energy shock and inflation data.
The People's Bank of China (PBOC) also made waves by setting the yuan midpoint at its strongest level since March 2023, a bold move in the context of the USD's recovery. This decision drew attention to the PBOC's policy intentions. Meanwhile, India's state-run refiners increased fuel prices for the second time in a week, highlighting the ongoing impact of Middle East supply disruptions on Asian energy markets.
As the week progressed, the markets continued to navigate a complex landscape. The South Korean won weakened, and US Vice President JD Vance's upcoming press briefing on Wednesday will be closely watched for any updates on the Iran diplomatic front. The week's events underscore the delicate balance between geopolitical tensions and economic data, leaving investors and analysts alike with a challenging yet intriguing outlook.
