Israel Attacks Iranian Nuclear Sites; National Security Council Convenes

The EUR/USD pair pulled back from its highest level since October 2021 early Friday, ending a four-day rally as renewed demand for safe-haven assets, with the US Dollar gaining ground amid escalating geopolitical tensions in the Middle East.

Markets were rattled after Israel launched a series of strikes targeting Iranian nuclear facilities. Defense Minister Israel Katz warned of a potential retaliatory missile and drone attack, declaring a state of emergency across the country.

In other news, President Donald Trump announced a new round of steel tariffs set to take effect on June 23, expanding existing duties to include “steel derivative products” such as household appliances. The tariffs, initially set at 25% in March, were later doubled and have now been broadened in scope, adding uncertainty to global trade dynamics and weighing on the US Dollar’s outlook. The US currency also remains under pressure from weakening inflation data. The latest Consumer Price Index (CPI) and Producer Price Index (PPI) reports showed continued disinflation, reinforcing expectations that the Federal Reserve may proceed with rate cuts later this year.

In Europe, the Euro’s recent strength was bolstered by hawkish commentary from European Central Bank (ECB) officials. Isabel Schnabel signaled that the ECB's easing cycle may be nearing an end, stating that financial conditions are no longer restrictive.

Looking ahead, traders will closely monitor inflation reports from Germany and France, as well as Eurozone industrial production data. In the US, the University of Michigan’s Consumer Sentiment Index for June and inflation expectations will offer further clues about the economic outlook.

Gold prices continues to hover above the $3,400 mark early on Friday, supported by escalating geopolitical risks and a shift in monetary policy expectations.

Investor sentiment remains cautious following a dramatic escalation in the Middle East. Israel launched a series of airstrikes on Iranian nuclear and military facilities overnight, declaring a national state of emergency in anticipation of potential retaliation. Prime Minister Benjamin Netanyahu stated that the operations would continue "as long as necessary" to neutralize Iran's nuclear threat. Iran's Supreme Leader Ayatollah Ali Khamenei condemned the strikes, vowing severe retaliation and calling the attacks a grave crime. The rising threat of a broader regional conflict is driving demand for safe-haven assets like gold.

On the trade front, President Donald Trump announced an expansion of the existing 50% steel tariffs to include various household appliances, adding to trade-related uncertainties. Commerce Secretary Howard Lutnick confirmed that tariff levels on Chinese imports remain unchanged at 55%, but Trump's move added fresh concerns over global trade stability.

Looking ahead, market participants will keep a close watch on the preliminary release of the University of Michigan's Consumer Sentiment Index and inflation expectations. However, the dominant drivers for gold remain the geopolitical crisis in the Middle East and the trajectory of US monetary policy.

Crude oil prices soared early on Friday, with both Brent and WTI benchmarks posting their sharpest gains since 2022, following a dramatic escalation in Middle East tensions. Israel’s military strikes on Iranian nuclear and military infrastructure reignited fears of potential supply disruptions, pushing oil prices to their highest levels in nearly five months.

The magnitude of Friday’s move marks the largest single-day surge for both contracts since the 2022 market shock caused by Russia’s invasion of Ukraine.

Israel confirmed it launched strikes against Iran’s nuclear sites, ballistic missile production centers, and senior military figures in what it described as the beginning of a sustained campaign aimed at curbing Tehran’s atomic ambitions. The aggressive move has rattled markets and injected a substantial geopolitical risk premium into oil prices.

Analysts say the key focus now is how Iran might respond. A key question is whether Iranian retaliation will be confined to Israel, or if Tehran will target U.S. bases and critical energy infrastructure across the broader region, thereby internationalizing the conflict.

U.S. Secretary of State Marco Rubio clarified on Thursday that the United States was not involved in the Israeli operation, calling it a "unilateral action." Rubio also warned Tehran against targeting American interests or personnel in the region.

With volatility set to remain high, market participants will be watching for any signs of Iranian retaliation or further military action. The oil market appears poised for continued turbulence as geopolitical risks take center stage.

U.S. stock futures dropped sharply Thursday evening following reports that Israel had initiated military strikes against Iran, escalating geopolitical tensions and rattling investor sentiment across global markets. Despite reassurances that the United States was not involved, the market reacted swiftly to the heightened risk environment.

The strikes reportedly target strategic assets, though specific locations have not been confirmed. Israel’s defense minister declared a nationwide state of emergency.

While the White House emphasized that it had no role in the strikes, tensions had already been building after Washington signaled it could consider military options should nuclear talks with Tehran fail—a key deadline for which expired Thursday. Iran had earlier vowed to respond decisively to any Israeli aggression, increasing the potential for further regional escalation.

In corporate news, shares of Boeing Co.  fell sharply after reports emerged that an Air India 787-8 Dreamliner crashed shortly after takeoff from Ahmedabad, India, with 242 passengers onboard. While details were still emerging, over 200 fatalities are feared.

On the macro front, the May Producer Price Index (PPI) came in cooler than expected, led by a decline in service costs such as airfares. Combined with this week’s subdued Consumer Price Index (CPI) data, the figures bolster expectations for a Federal Reserve rate cut later this year. The Fed is widely expected to maintain its benchmark rate between 4.25% and 4.50% at next Wednesday’s policy meeting, with easing likely to begin in September.