In the week ahead: ISM Manufacturing, Non-Farm Payrolls, Powell Speaks

The EUR/USD pair pulled back on Friday after briefly climbing above 1.1750 the highest level of 2025 so far. Despite the intraday retreat, the pair ended the session slightly higher and recorded a weekly gain of 1.66%. The pullback came even as market confidence grew that the Federal Reserve will begin cutting interest rates as early as September.

Fresh data from the Bureau of Economic Analysis showed that the core Personal Consumption Expenditures (PCE) index—the Fed’s preferred inflation measure—rose 2.7% year-over-year in May, exceeding expectations and up from 2.6% in April. The headline PCE figure, however, remained steady at 2.3%, in line with consensus estimates.

Meanwhile, consumer sentiment in the United States showed modest improvement. The University of Michigan’s index edged higher to 60.7 in June from 60.5 in May. Inflation expectations among consumers also eased slightly, with one-year inflation seen at 5% (down from 5.1%) and five-year expectations dipping to 4% from 4.1%.

On the European front, ECB Governing Council member Klaas Knot suggested one more 25 basis point rate cut could materialize in late 2025. ECB Vice-President Luis de Guindos echoed a dovish tone, stating that Eurozone inflation is nearing the central bank’s 2% target.

Markets also responded to a calmer geopolitical backdrop, including de-escalation in the Middle East and reports of a new commercial agreement between the US and China.

US Commerce Secretary Howard Lutnick remarked that although the EU had a slow start to the year, its recent economic momentum offers hope for a potential agreement. European Commission President Ursula von der Leyen confirmed the bloc is preparing for both deal and no-deal scenarios, keeping all options open.

Gold prices dropped sharply on Friday, falling almost 1.5% as investors rotated out of safe-haven assets amid a brighter global economic outlook. The retreat was fueled by a combination of geopolitical de-escalation, trade developments, and improving sentiment around global growth.

The decline came as markets responded positively to several developments such as the formal signing of a US-China trade agreement, signs of diplomatic progress in the Middle East, and active negotiations between the US and key trade partners, including the EU, South Korea, and Vietnam.

US Commerce Secretary Howard Lutnick confirmed that further trade deals are likely in the coming weeks, highlighting progress in talks and commitments such as China’s pledge to deliver rare earth materials.

Geopolitical tensions in the Middle East also appeared to ease. Reports from Al Arabiya indicated the Israel–Gaza conflict could conclude within two weeks. Additionally, Iran signaled willingness to engage diplomatically, with a UN representative suggesting openness to forming a regional nuclear consortium if negotiations with Washington progress.

Oil prices ended Friday’s session with minor losses, capping a week in which they tumbled approximately 12%—the largest weekly drop since March 2023.

Market sentiment briefly soured midday after four OPEC+ delegates disclosed plans to boost output by 411,000 barrels per day in August, following a similar increase already scheduled for July. The production news prompted a swift selloff before prices stabilized later in the session.

Oil prices had been under pressure for most of the week after the cease-fire between Israel and Iran was announced. The 12-day conflict, which began when Israel struck Iranian nuclear facilities on June 13, briefly pushed Brent prices above $80 per barrel. However, prices fell sharply to $67 after U.S. President Donald Trump confirmed the truce.

Oil prices were also bolstered earlier in the session by several inventory reports. U.S. government data released Wednesday showed that crude and fuel inventories declined, with increased refining activity and stronger demand. Middle distillates, in particular, saw notable draws, helping to buoy sentiment.

In Asia, China—the world’s largest oil importer—significantly increased its purchases of Iranian crude. According to ship-tracking firm Vortexa, China imported more than 1.8 million barrels per day of Iranian oil between June 1 and 20, the highest on record. Analysts attribute the surge to accelerating shipments ahead of the Israel-Iran conflict and improved demand from independent refiners.

The US 500 closed at a new record on Friday, recovering from a sharp intraday dip triggered by renewed trade tensions between the U.S. and Canada.

All three major U.S. stock indexes logged solid weekly gains, as investor optimism held firm despite escalating trade rhetoric.

President Donald Trump reignited trade war fears after announcing an immediate halt to trade negotiations with Canada. The move followed Ottawa's implementation of a digital services tax targeting U.S. tech firms—an action Trump called “egregious,” accusing Canada of mimicking the European Union.

Markets initially slumped on the news, but later rebounded amid fresh signs of progress on U.S.-China trade relations.

U.S. Treasury Secretary Scott Bessent said Friday that the U.S. and China had resolved key issues over rare earth mineral shipments—a major sticking point in negotiations—raising hopes that a deal could be reached before the July 9 deadline when the current tariff truce expires.

The market was further buoyed by continued easing of geopolitical tensions, including a sustained ceasefire between Israel and Iran and soft inflation data that reinforced expectations of a potential Fed rate cut.

In corporate news, shares of Nike surged after the company reported better-than-expected fiscal Q4 earnings and signaled that the worst of its turnaround pressures may be over.