U.S. CPI and PPI Reports Form Critical Monetary Policy Focus

The euro weakened against the US dollar during early Asian trading on Tuesday, with EUR/USD falling to around 1.1530 as investors reacted to renewed uncertainty in the Middle East. Market participants are also positioning ahead of key economic and monetary policy events later this week, including US inflation data and the European Central Bank's (ECB) interest rate decision.

Geopolitical concerns resurfaced after Israeli Prime Minister Benjamin Netanyahu stated on Monday that the conflict involving Iran and the Lebanon-based Hezbollah group "has not yet ended," despite claiming that both adversaries have been significantly weakened. His remarks came after Iran announced the conclusion of its military operations against Israel. However, Tehran's military leadership warned that any further Israeli attacks, including those in southern Lebanon, would trigger a stronger response.

The escalation in regional tensions has boosted demand for safe-haven assets, supporting the US dollar and placing downward pressure on EUR/USD.

Investors are now awaiting the release of the US Consumer Price Index (CPI) report for May, scheduled for Wednesday. The data could provide fresh clues about the Federal Reserve's policy outlook and influence near-term currency market direction.

Attention will then shift to the ECB's policy meeting on Thursday. Financial markets have fully priced in a 25-basis-point interest rate increase following the recent rise in Eurozone inflation to 3.2%.

Beyond the rate decision itself, traders will focus on the ECB's press conference for signals regarding future policy moves. Any indication that policymakers remain committed to further tightening could provide support for the euro in the short term.

Gold prices remained largely unchanged during Asian trading on Tuesday. While a softer US dollar provided some support to the precious metal, expectations of tighter US monetary policy continued to limit upside momentum.

The US dollar eased from a more than two-month high after Israel and Iran announced a halt to direct hostilities following an appeal from US President Donald Trump. The de-escalation reduced immediate demand for safe-haven assets, weighing on the greenback and offering support to gold prices.

However, market participants remain cautious as broader geopolitical risks in the Middle East have not fully subsided. Diplomatic efforts between the United States and Iran remain stalled due to significant disagreements over Tehran's nuclear program. President Trump has reiterated that any future agreement must prevent Iran from developing nuclear weapons.

Adding to market concerns, shipping activity through the Strait of Hormuz remains restricted, contributing to volatility in global energy markets and reinforcing inflation fears. As a result, investors have maintained expectations that major central banks, including the US Federal Reserve, may need to keep monetary policy tighter for longer.

Investors are now turning their attention to key US inflation data scheduled for release this week. The Consumer Price Index (CPI) report is due on Wednesday, followed by the Producer Price Index (PPI) on Thursday. The figures are expected to provide important clues about the Federal Reserve's future policy path and could drive the next major move in both the US dollar and gold prices.

Oil prices edged lower during Asian trading on Tuesday as investors assessed a fragile ceasefire between Israel and Iran, while ongoing disruptions in the Strait of Hormuz continued to provide underlying support to crude markets.

The pullback followed a sharp rally on Monday, when Brent briefly surged above $98 per barrel amid renewed military exchanges between the two regional rivals.

Market sentiment improved after US President Donald Trump indicated that Israel and Iran were moving toward an immediate ceasefire. Both countries later signaled a temporary halt to military operations, easing concerns over a broader regional conflict and prompting some traders to unwind risk premiums that had been built into oil prices.

The ceasefire follows a volatile weekend marked by missile strikes and attacks on energy-related infrastructure, events that reignited fears of supply disruptions across the Middle East. While the reduction in hostilities has helped stabilize markets, investors remain cautious as the truce remains fragile and could quickly deteriorate if tensions flare again.

A key source of concern remains the Strait of Hormuz, one of the world's most important oil transit routes. Shipping activity through the strategic waterway remains heavily restricted, raising fears of prolonged supply disruptions and contributing to elevated volatility across energy markets.

Meanwhile, traders are also evaluating the effect of planned production increases from OPEC+ in the coming months. Although the producer alliance is gradually restoring output, many analysts believe the additional supply may not be sufficient to fully offset potential disruptions linked to the Hormuz crisis.

Looking ahead, oil prices are likely to remain highly sensitive to geopolitical headlines and developments surrounding regional security. While the ceasefire has reduced immediate fears of a broader conflict, persistent supply risks and uncertainty over key shipping routes continue to support crude prices and keep volatility elevated.

US stocks finished mixed on Monday, with the US 500 and US Tech 100 recovering from their sharpest decline of the year as investors returned to technology shares and welcomed signs of easing tensions in the Middle East.

The rebound followed Friday’s steep selloff, which saw the US 500 post its worst daily performance of the year and end a nine-week winning streak.

Market sentiment had been rattled by a stronger-than-expected May employment report, which reinforced the view that the Federal Reserve may keep monetary policy restrictive for longer. The data triggered a sharp rise in Treasury yields and weighed heavily on growth-oriented sectors, particularly technology stocks.

Despite the recent volatility, many investors continue to view the broader market outlook positively. Strong corporate earnings and resilient economic data have supported expectations that equities can continue advancing even without near-term interest rate cuts.

Attention is now turning to this week's inflation reports, which could provide crucial guidance on the Federal Reserve's next policy steps. The Consumer Price Index (CPI) is scheduled for release on Wednesday, followed by the Producer Price Index (PPI) on Thursday.

Technology stocks led Monday's recovery. Semiconductor shares rebounded strongly after Friday's selloff, helping lift the broader market. The Philadelphia Semiconductor Index surged more than 5%, with several major chipmakers posting notable gains.

Apple was among the session's notable laggards, declining nearly 2% as investors reacted cautiously to announcements made during the company's annual Worldwide Developers Conference.