A wave of renewed hostilities in the Middle East, particularly between Israel and Iran, has triggered sharp movements across global financial markets. Over the weekend, Israel carried out strikes on military targets in western and central Iran after Iran fired ballistic missiles at Israeli military targets, including Israel’s Ramat David air base, in retaliation for Israeli actions in Lebanon. The conflict has spilled into neighboring regions, with reports of Israeli strikes in southern Lebanon and Iranian military action in northern Iraq, raising fears of a wider regional conflict and threatening a fragile ceasefire. The escalation has also seen missile launches from Yemen towards Israel, intercepted by Israeli defense systems, further intensifying safe-haven demand for the US Dollar [1][2][3][4][5].
The geopolitical turmoil has pushed oil prices sharply higher, with the MCX Crude Oil contract expiring June 18 up 4.6% to near 9,020, raising inflationary concerns for economies reliant on oil imports such as India. The Indian Rupee (INR) weakened against the US Dollar, with USD/INR rising to near 95.30. Foreign Institutional Investors (FIIs) have remained net sellers in Indian equities, offloading Rs. 30,814.47 crore in June and Rs. 55,963.33 crore in May, citing concerns over India Inc.'s earnings projections amid higher oil prices [1][5].
Asian stock markets plunged at the start of the week. The Nikkei 225 fell 3.55% to near 64,200, while South Korea’s KOSPI nosedived 4.5% to near 7,800, triggering a 20-minute circuit breaker after an 8% drop. Chipmakers Samsung and SK Hynix fell over 10% in opening trade. Shanghai and Hang Seng indices slumped by almost 0.8%. Indian equity markets are expected to open lower, with Gift Nifty futures down nearly 300 points to 23,160 [5].
The US Dollar Index (DXY) held at a two-month high around 100.00, supported by stronger-than-expected US Nonfarm Payrolls (NFP) data for May. The US economy added 172,000 jobs, beating the 85,000 estimate, and the previous month’s figure was revised up to 179,000. The unemployment rate remained steady at 4.3%. These data points have significantly increased hawkish Federal Reserve bets, with the CME FedWatch tool showing the probability of at least one rate hike this year rising to 73.8%–74.4% from 45.2% a week ago [1][2][3][4][5].
The surge in the US Dollar has pressured other currencies. The Indonesian Rupiah (IDR) hit an all-time low of 18,210 against the USD, with Bank Indonesia’s interventions causing forex reserves to drop by $1.3 billion in May to $144.9 billion, the lowest in nearly two years. The Swiss Franc (CHF) weakened, with USD/CHF trading around 0.7970, as May inflation came in at 0.6%, missing the 0.8% forecast and dampening rate-hike expectations. Investors now expect the Swiss National Bank to hold its key rate at 0% through 2026 [2][4].
Gold (XAU/USD) also came under pressure, falling to its lowest level since March 23 and breaking below its 200-day SMA. The commodity remains vulnerable, with traders awaiting acceptance below the $4,300 mark before placing fresh bearish bets. The outlook for gold is bearish, with the path of least resistance to the downside, as the US Dollar’s strength and hawkish Fed bets continue to weigh on the precious metal. Market participants are now awaiting US inflation data (CPI and PPI) later in the week, as well as central bank meetings from the Bank of Canada and the European Central Bank, which are expected to inject further volatility [3].
CONCLUSION
The combination of renewed Middle East conflict and unexpectedly strong US employment data has driven a surge in the US Dollar, rattling global equity, currency, and commodity markets. Asian stocks, oil-importing currencies, and gold have all suffered, while hawkish Fed bets have intensified. Market participants remain focused on upcoming US inflation data and central bank meetings for further direction.